-co
HONEST
MONET
ARTHUR I.FONDA
co
HONEST MONEY
HONEST MONEY
BY
ARTHUR I. FONDA
gork
MACMILLAN AND CO.
AND LONDON
1895
All rights reserved
COPYRIGHT, 1895,
BY MACMILLAN AND CO.
Norfaiooti ^rfgs :
J. S. Gushing & Co. Berwick & Smith.
Norwood, Mass., U.S.A.
PREFACE.
IN an article in the " American Journal of
Politics" for July, 1893., I gave a brief state-
ment of the conclusions I had reached in an
attempt to analyze the requirements of a
perfect money.
The limits of a magazine article prevented
a full discussion of the subject ; many points
were left untouched, and all quotations from
the works of other writers, in support of the
brief arguments given, were of necessity
omitted.
As the course of events since the article
referred to was written has more fully con-
firmed the conclusions stated therein, a desire
to give the subject ampler treatment, which
its importance seems to demand, has led to
the writing of this little work.
VI PREFACE.
If apology is needed for a further contribu-
tion to the mass of literature on the subject
of money, with which the country has of late
been flooded, it must be found in the above
explanation of the reasons which have led to
the production of the present volume, coupled
with the fact that the questions involved are
far from being settled, and that the loud
complaints, and the many financial schemes
and plans, that have appeared all over the
country make it probable that further legisla-
tion on the subject will be attempted in the
near future.
It must be conceded that there is some-
thing radically wrong in a country like the
United States, rich in all of the necessaries
and most of the luxuries of life, where nature
has been most bounteous, and where the not
excessive population is exceptionally enter-
prising and industrious, when a large part
of the people cannot at times find employ-
ment. When, with an abundance of unoccu-
pied land, and a great diversity of undeveloped
PREFACE. Vll
resources, capital and labor both anxious
for profitable employment cannot find it ;
and when men suffer for the necessaries of
life, not in one section only, but universally
and in large numbers, while our warehouses
are filled with manufactured goods, and our
barns and granaries are bursting with food
products. This is a condition that is certainly
as wrong as it is unnecessary.
Such a condition occurring once or twice
in the history of a country might be attrib-
uted to accident, but recurring, as it does,
periodically, it argues a fault in our economic
system. So wide a disturbance, extended also
to other countries, betokens a general cause.
What that cause is, it is not difficult to per-
ceive all indications point to our monetary
system as the chief source of the trouble.
There are doubtless other causes that con-
tribute in some degree to create variations
in prosperity, but no other single cause, or
combination of causes, seems to us compe-
tent to account for the great fluctuations ;
Vlll PREFACE.
while the one we have cited alone may easily
do so.
This work may have little direct effect
in bringing about an improvement in our
money system, but it is the hope of the writer
that it may have at least an indirect effect
by helping to spread a better knowledge of
the requirements of such a system and of the
principles involved.
Much of the current discussion of the
subject of money betrays ignorance of those
fundamental principles of the science which are
agreed upon by all economists, if it does not
wholly disregard them. I have endeavoured
in this work to avoid such errors by a pains-
taking analysis of the subject, and by a care-
ful comparison of the opinions of authorities
on the principles involved. Starting from this
foundation I have deduced the requirements
for an honest money, shown the faults of our
present system in the light of these require-
ments, as well as the merits and defects of
various changes that have been proposed
PREFACE. IX
for its betterment, and, in conclusion, have
outlined a system that seems to meet the
requirements and to correct existing faults.
I desire to acknowledge my indebtedness,
not only to the many works mentioned and
quoted from herein, but to others, neither men-
tioned nor quoted, which have been of material
assistance in corroborating the opinions I have
ventured to advance.
A. I. F.
DENVER, COLO.
CONTENTS.
CHAPTER I.
PAGE
VALUE AND THE STANDARD OF VALUE .... 1
Definition of Value ....... 1
Supply and Demand ....... 8
The Standard of Value 12
CHAPTER II.
MONET 21
Definition of Money 21
The Functions and Requirements of Money . . 25
Money Value ........ 29
Money Demand and Supply 36
Necessity for Invariable Money Value ... 40
CHAPTER III.
EXISTING MONETARY SYSTEMS 51
The Gold Standard 54
Gresham's Law ........ 57
The Silver Standard 65
Bi-metallism 67
Paper Money 71
Xll CONTENTS.
CHAPTER IV.
PAGE
STABILITY OF GOLD AND SILVER VALUES ... 81
Gold-Standard Prices 81
Silver-Standard Prices 94
CHAPTER V.
CRITICISM OF SOME GOLD-STANDARD ARGUMENTS . . 98
CHAPTER VI.
FOREIGN COMMERCE 112
CHAPTER VII.
MONEY IN THE UNITED STATES 125
CHAPTER VIII.
SOME PROPOSED CHANGES IN OUR MONEY SYSTEM . 137
CHAPTER IX.
A NEW MONETARY SYSTEM ...... 151
The Standard of Value 158
The Medium of Exchange 164
CHAPTER X.
MERITS AND OBJECTIONS CONSIDERED .... 181
Merits of Plan 181
Objections Answered 187
CHAPTER XL
CONCLUSION 196
INDEX 205
HONEST MONEY.
CHAPTER I.
VALUE AND THE STANDARD OF VALUE.
Definition of Value.
A CLEAR conception of the meaning of the
term value is the first essential to a discussion
of the subject of money.
Under the general term value the' older
economists recognized two distinct concep-
tions, which they distinguished as value in
use and value in exchange.
To the former they gave little attention,
merely stating that while it was essential to
value in exchange, the latter was not propor-
tional to nor determined by the former, and
citing air and water as familiar examples of
Z HONEST MONEY.
objects having great utility, or use value,
yet having little or no exchange value.
Modern economists chiefly those of the
Austrian school have analyzed the subject
more thoroughly, especially the relation be-
tween the two conceptions, and have shown
that utility or subjective value, as it is
generally termed by them, is an expression
both of human desire and of the quantity of
the necessary commodity available to satisfy
such desire.
The utility of a thing grows less as the
quantity of it increases, and it is the utility
of the last increment of supply, or the mar-
ginal utility, that determines the subjective
value of the whole supply, and it is the
ratios between these subjective values that
determine exchange values. Air and water,
for instance, have no great utility, as viewed
by the older economists, except where the
supply is limited ; ordinarily, their abundance
makes their utility, or use value, small.
It is not essential to the purpose of this
VALUE AND THE STAND AKD OF VALUE. 3
work to enter into an abstract discussion of
the theory of value further than is necessary
to make clear the fact that the present analy-
sis in no way lessens or invalidates the dis-
tinction between the two conceptions of value
noted by the earlier economists, a fact
which has been overlooked by some who
have accepted the marginal utility theory.
The distinction remains, broad and clear.
The one conception, whether called "value
in use," "marginal utility," or "subjective
value/' pertains wholly to the relation which
a single good, or unit group of goods, bears
to a single individual, or society unit, in
respect to human well-being, and has no
reference or relation to any other individual
or other good.
The other conception, called "objective
value," or " exchange value," is dual in its
nature, involving in all cases two or more
commodities. Abstractly, it is the ratio at
which commodities may be exchanged for each
other, or, since such ratio for a unit of one
4 HONEST MONEY.
commodity is expressed by the amount of
another given for it, the exchange value of
a thing is the quantity of some other thing
that will be evenly exchanged for it, or, con-
sidered in a general sense, the amount of
commodities in general it will exchange for,
its general purchasing power, in short.
This latter conception exchange value
is the one that principally concerns us in
discussing the subject of money. It is also
the conception generally in mind when the
simple term value is used either by econo-
mists or by the general public, and where-
ever the term is used in this work without
qualification it is to be understood in that
sense.
The Austrian economist, E. von Bohm-
Bawerk, says, in his " Positive Theory of
Capital," p. 130:-
" Value in the subjective sense is the impor-
tance which a good, or a complex of goods,
possesses with regard to the well-being of a
subject."
VALUE AND THE STANDARD OF VALUE. 5
" Besides the expression ' value in exchange/
English economists use, quite indifferently,
the expression ' purchasing power,' and we
Germans are beginning in the same way to
put in general use the term Tauschkraft."
The value of a thing may be considered
either in a particular sense, with reference to
some other specified thing, or it may be con-
sidered in a general sense, with reference to
all other things considered as a whole. We
may say the value of a bushel of wheat is
two bushels of corn, meaning that these two
commodities exchange for each other in that
ratio ; or we may speak of the value of wheat
having risen or fallen, meaning that its gen-
eral purchasing power, or the ratio between
that and all other things taken as a unit or
a whole, has increased or decreased.
The term must invariably be used or con-
sidered in a general sense, unless otherwise
specifically stated, for we must always have
some other thing in mind besides the one
whose value we are considering ; while if no
6 HONEST MONEY.
other is stated, commodities in general (taken
as a whole) is that thing.
Value being a ratio, it is impossible for all
values to rise or fall simultaneously. The
sum of subjective values may increase or de-
crease, indeed it is one of the great objects
of human endeavour to increase the sum of
want-satisfying power, but the sum of the
ratios between these subjective values is con-
stant. As one term of any ratio rises rela-
tive to the other, the second necessarily falls
as regards the first.
This principle is so universally recognized
that quotations might be given from almost
every work on political economy in support
of it. The following will be sufficient, how-
ever, as regards both the definition of value
and this principle.
John Stuart Mill says, in his " Principles of
Political Economy" :
" Value is a relative term. The value of a
thing means the quantity of some other thing,
or of things in general, which it exchanges
VALUE AND THE STANDARD OF VALUE. 7
for. The values of all things can never,
therefore, rise or fall simultaneously. There
is no such thing as a general rise or a gen-
eral fall of values. Every rise of value sup-
poses a fall, and every fall a rise."
Again, he says :
" Things which are exchanged for one
another can no more all fall, or all rise, than
a dozen runners can each outstrip all the rest,
or a hundred trees all overtop one another."
Prof. S. N. Patten says, in "Dynamic Eco-
nomics," p. 64 : " Objective values, however,
are never a sum, but only a relation between
subjective values. There can never be high
or low objective values of commodities as a
whole. It is therefore impossible to add to
or subtract from them."
This latter quotation, as well as the preced-
ing one from von Bohm-Bawerk, both expo-
nents of the marginal utility theory, may
help to correct a quite prevalent impression
that this later theory does not distinguish
between the two conceptions of value, and
8 HONEST MONEY.
that because the sum of subjective values
may increase, the sum of objective or ex-
change values can increase also.
Supply and Demand.
All economists recognize the fact that the
immediate determiner of value is the rela-
tion between supply and demand. These
terms in their economic sense mean some-
thing more than mere desire and mere quan-
tity. Supply means the amount offered in
exchange, and demand means not only a
desire, but a desire coupled with the ability
and willingness to give other commodities
in exchange for the one wanted.
In this sense the terms are strictly correla-
tive. The supply of a commodity (that is,
the amount offered) may be considered as
equivalent to a demand for some other com-
modity, or for commodities in general. We
may say, then, that the value of any commod-
ity is determined by the ratio that the demand
for that commodity bears to its supply ; or by
VALUE AND THE STANDARD OF VALUE. 9
the ratio that the demand for that commod-
ity bears to the demand for some other com-
modity, or commodities in general, when
the term value is used in a general sense
and not with reference to some other speci-
fied thing only. (The objection that has
been made by some writers that a ratio could
not logically exist between a desire [demand]
and a quantity [supply], does not apply to
these terms in their economic sense ; for, as
above stated, they are something more than
a mere desire and a mere quantity, and the
expression is translatable into the other ex-
pression, " ratio between the demand for one
commodity and the demand for others in
general.")
The statement of the later economists
that exchange value depends on, and is de-
termined by, the ratio between subjective
values in no way conflicts with the above
statement that value is determined by the
ratio between demand and supply, for the
demand for a commodity is determined by
10 HONEST MONEY.
its subjective value and by that alone, and
must vary with it. Hence, as the quantity
of anything increases and its subjective
value lessens, the demand for it relative to
the quantity of other articles also lessens, and
its value falls, and vice versa.
This close connection between value and
the ratio between demand and supply value
rising as the ratio increases, and falling as
it grows less is true in all cases. No other
factor can affect the value of any commod-
ity except by altering the relation or ratio
between these two.
Cost of production is a more remote factor
that enters into the determination of value
in most but not in all cases, through its effect
on supply. It is used, like the term value,
in two senses, a subjective and an objective
sense. In the former it means the pain of
labour and waiting that must be undergone
to produce the good that is being considered,
the negative pleasure given to get the
positive pleasure to be derived from that
VALUE AND THE STANDARD OF VALUE. 11
good. In its objective sense the sense in
which it is generally used cost of produc-
tion means the goods that must otherwise be
given for, bartered or set against those desired ;
in a simple case of direct production, it means
the goods that might have been produced, in
lieu of those that have been produced, with
the same subjective cost ; in more complex
cases, it means the sum of the goods sacrificed,
in the shape of raw materials, rent, wages,
interest, etc., to get the one produced.
When the value of a commodity falls to
or below the cost of production, or even when
it approaches it so closely as to reduce the
margin between the two the producer's
profit below that in other industries, then,
men will cease to produce the one and turn
their labour and capital to producing the others
which offer greater profit, thus lowering the
supply of the abandoned product and raising
that of the more profitable, thereby affecting
the value of both.
The effect of this operation of the law of
12 HONEST MONEY.
cost is to equalize profits and make the
values of things conform to their cost or be
proportional thereto.
The law can only operate when men are
free to turn their labour from one industry to
another. Hence arises the important ex-
ception to the law, that the values of goods
produced by a monopoly are not affected by
their cost of production. Only under free
competition does the law operate in full
force. As monopoly becomes a factor cost
ceases to be, and, when the monopoly is com-
plete, cost has no weight whatever in the
determination of value.
For analogous reasons, cost enters but par-
tially into the determination of the value of
such goods as are dependent more or less
on luck or chance for their production, as in
the case of precious stones, gold, silver, etc.
The Standard of Value.
"We may use the value of anything as a
measure by which to compare the values of
VALUE AND THE STANDARD OF VALUE. 13
any and all other things, but as all the fac-
tors that determine value are variable, the
value of everything is variable. Any value
may rise with reference to some other value,
and at the same time fall with reference
to a third.
By what standard, or invariable measure
at all times and places, can we compare the
values of goods to determine their constancy
or variability?
We must not forget that there are two
kinds of value, and that it is a standard of
exchange value we are seeking. So far as it
may be possible to formulate a standard of
subjective value, it must consist of the pain
or inutility of labour ; for this kind of value
pertains only to a single good, and cannot
be referred to other goods without confusing
it with the other conception. We cannot
measure the absolute pleasure a good will
give to an individual except by the pain he
will undergo to get it. It is not a standard
for this sort of value we want. It was evi-
14 HONEST MONEY.
dently some such conception as the above
confusing, however, not only the two kinds of
value but the two descriptions of labour that
led Adam Smith to consider labour as the
ultimate standard of value. He appears also
to have confused the idea of a standard of
value with that of a determiner of value.
These errors were pointed out in part by
Ricardo and, in part also, by J. S. Mill and
later writers ; hence the contention that labour
is in any way a standard of value has long
been abandoned by the ablest economists.
The idea still lingers, however, and is fre-
quently brought forward in current discus-
sions, and for this reason it seems necessary
to analyze briefly the relation of labour to
value.
Labour is necessary to the production of all
commodities, but it is not itself a commodity,
nor anything which for itself is desired. It
is a force, and, like every force, valuable ac-
cording to the results it accomplishes. If
unproductive, it has no value ; if productive,
VALUE AND THE STANDARD OF VALUE. 15
its value varies according to the value of the
commodities or utilities it creates. We use
the terms " price of labour " or " value of
labour," implying that it is the labour which
is valued, and which is bought and sold; but
the terms are merely a convenience. What
is really bought and sold is the commodity
or utility such labour has produced or will
produce. If it were the labour itself, then
the purchaser would receive not only the
labour, but the commodity it produced, in
exchange for the wages paid, a double
return, which, of course, is absurd.
Three descriptions of labour may be dis-
tinguished in connection with the value of
a commodity, viz. :
(1) The labour expended in its production.
(2) The labour in general it will purchase.
(3) The labour necessary to produce more
of it.
The first kind of labour in no way affects
the existing supply or demand of the commod-
ity, and is neither a measure of its value nor a
16 HONEST MONEY.
regulator or determining factor of such value.
Evidences are not lacking to prove that a
commodity will frequently not exchange for as
much labour as was expended in producing it.
The second kind of labour, the amount in
general which a commodity will purchase,
depends on the amount of commodities such
labour will produce, less the share which goes
to capital as its reward ; for, neglecting rent
or classing it with capital, these two, labour
and capital, are joint factors in production
and divide between them the total product.
It is hardly necessary to observe that labour
is continually growing more efficient; that
improved skill and methods enable a much
larger amount of commodities in general to
be produced, with a certain amount of labour,
than could formerly be produced; and that
labour receives, as its share of such product,
a much larger amount than formerly.
It is thus evident, that a commodity which
would exchange for the same amount of
labour now as formerly, would exchange for
VALUE AND THE STANDARD OF VALUE. 17
a much larger amount of commodities in gen-
eral now than then, and, if we adhere to our
definition of exchange value, would be worth
more than formerly ; while if labour be taken
as a standard of value, it would be worth the
same. The use of this form of labour as a
standard of value is, it will be seen, incom-
patible with the definition of value. It may
serve as a measure of the relative values of
two commodities at any particular time and
place, just as any third commodity may;
but, as Ricardo remarks, "is subject to as
many fluctuations as the commodities com-
pared with it."
The same argument applies to the third
form of labour that necessary to produce
more of a commodity. This form of labour,
however, is one of the factors in the cost of
production, and through its effect on cost is
one of the more remote factors that determine
value, as explained in considering cost of
production, but this does not make it in any
sense a standard.
18 HONEST MONEY.
We may conclude, then, that labour in any
form is not a standard of value ; that, as John
Stuart Mill observes, it " discards the idea
of exchange value altogether, substituting a
totally different idea, mone analogous to value
in use."
Since the values of things can never rise
or fall simultaneously, every rise supposing a
fall, and every fall a rise, it follows that the
values of all taken together must be constant ;
in other words, that general values cannot
change. Thus it is that we find whether any
one thing has risen or fallen in value, as
between one period and another, only by com-
paring it with all others, in short, by its
general exchange or purchasing power. If
this has increased, then its value has risen;
if it has decreased, its value has fallen. It
is evidently not necessary that anything
should exchange for more or less of every
other thing to show a rise or fall of value,
but only that it should, on the average,
exchange for more or less of all; that its
VALUE AND THE STANDARD OF VALUE. 19
average purchasing power should be greater
or less. If it has exchanged at different times
for the same amounts, on the average, of all
other things, its value, clearly, has remained
constant.
This is the only standard, or test, which
can be applied to the exchange value of any
commodity to determine its constancy or vari-
ability, and it is inherent in the very defini-
tion of exchange value.
The values of commodities may be com-
pared to the surface of the ocean, which,
vexed by winds and tides, is never at rest,
every point continually rising or falling as
compared with others. As some points rise
others fall, yet there is a mean level which
does not vary, and by comparison with which
the variations of level of any particular point
may be determined. So with values, there is
a mean or average which is constant, and by
referring individual values to that we can
determine their fluctuations.
These ideas will become clearer as we pro-
20 HONEST MONEY.
ceed to apply them concretely to the special
case of money.
Although there can be but one real standard
of value, invariable at all times and places,
yet, as before stated, any commodity may
serve as a measure of value, and the great con-
venience subserved, by all the people of any
locality or country using the same commodity
instead of a number of different ones for this
purpose, early led to the adoption of some one
commodity in each locality as a " money " to
measure values and facilitate exchanges.
CHAPTER II.
MONEY.
Definition of Money.
MONEY has been variously defined by differ-
ent writers. Perhaps the definition given by
Prof. F. A. Walker, though lengthy, is the
most comprehensive. He says : " Money is
that which passes freely from hand to hand
throughout the community in final discharge
of debts and full payment for commodities,
being accepted equally without reference to
the character or credit of the person who
offers it, and without the intention of the per-
son who receives it to consume it, or enjoy it,
or to apply it to any other use than in turn
to tender it to others in discharge of debts
or full payment for commodities."
21
22 HONEST MONEY.
This definition has been indorsed by several
other writers; by some, however, the term
money is restricted to coin, paper money
being called currency. The distinction is per-
fectly proper, though not generally concurred
in. People commonly use the terms money
and currency indiscriminately for both coin
and paper money, since they perform identi-
cally the same work where both are used
together, and the paper is convertible into
coin at any time. Where the paper is used
alone " inconvertible paper ' ' coin is really
not money ; it ceases to circulate as money ;
it is hoarded as treasure, or bought and sold
as a commodity, but fails to have that general
use in current transactions in that country
which alone entitles any commodity to be
called money.
The distinction sought to be made between
paper money and coin arises largely, it is
thought, from the idea that coin has a value
in itself which paper money has not. This
idea is erroneous. Value, as we have seen, is
MONEY. 23
a ratio or relation, and though the value of
anything is based on a desire for it, that de-
sire may arise either from the satisfaction
which the use or consumption of it will bring,
or from the belief that it can be exchanged for
some other thing that will give satisfaction in
use or consumption. The value of money is
due to the latter of these two causes. No
one wants money except for the purpose of
exchanging it for other commodities ; under
modern conditions it is necessary for* this
purpose, it is the indispensable requisite to
the satisfaction of certain human wants.
Money, therefore, possesses an indirect if not
a direct subjective value which forms the
basis of its exchange value. Paper money
possesses the power of satisfying this need
for money to the same extent that coin does,
under like conditions, and it has, therefore,
both subjective value and exchange value,
and the latter is governed by the same law
of supply and demand that operates in all
cases.
24 HONEST MONEY.
The fact that the material of which the
money is made is, in one instance, of great cost,
and, in the other, of little or no cost, is of
minor consequence. The minting of gold and
silver into coin may, or may not, add to its
value ; it really transforms it into another
commodity money and its value is thence-
forth determined by the law of supply and
demand as applied to money. The same is
true of paper money, the low cost in the pro-
duction of which is not an element in deter-
mining its value, for its production is always
a monopoly. There is no reason, then, for
not considering paper currency as money, and
in using the term we w r ill consider its mean-
ing to be that given by Professor Walker, -
which is also its popular significance, and
as including both paper money and coin.
It should be considered, whether of one ma-
terial or of several circulating concurrently,
as a single commodity created for the purpose
it fulfils, and as separate and distinct from the
material of which it is made. In short, as
MONEY. 25
that commodity to which, by common consent
and usage, generally sanctioned by law, all
other commodities are referred as a measure
of value, and by means of which exchanges
are effected.
TJie Functions and Requirements of Money.
Professor Jevons, in his valuable work,
" Money and the Mechanism of Exchange,"
gives to money the following threefold func-
tions, viz. as :
A medium of exchange.
A measure of value.
A standard of deferred payments.
He also inquires if it does not perform a
fourth function as a ' store of value.'
All authorities give the first two of the
above as the principal money functions.
Some include one or both of the others, and
some omit both.
Prof. F. A. Walker objects to the use of the
term " measure of value," on the ground that
value, being a relation, cannot be measured
26 HONEST MONEY.
but can only be expressed. He proposes,
instead, the term, "common denominator of
value." It is not quite clear why a relation
or ratio cannot be measured, the measure,
of course, being a similar ratio, nor does
there seem to be anything gained by the
change, while the term proposed seems less
clear and correct than the one in general use.
Money, or the value of the unit of money,
is used as a measure in comparing the values
of other things just as a yardstick, or the
length of a yard, is used in comparing the
lengths of other objects.
Money, in acting as a medium of exchange,
must also act as a store of value to some
extent, since it stores the value received
until it is expended ; but the use of money
for the purpose of hoarding is not to be re-
garded as strictly one of its functions, at
least not in the sense of requiring to be es-
pecially provided for. The fact that it is so
used, however, should be borne in mind, as
it interferes more or less with its other and
MONEY. 27
more important functions ; but in considering
the qualities necessary to the best perform-
ance of the functions of money we may omit
this last function, as any money which fills
the requirements for the others will fulfil
those necessary to this in a sufficient degree
considering its minor importance. As our
inquiries in this work will be confined to the
money materials now in general use, viz.,
gold, silver, and paper, we need not consider
the qualities necessary to a money material,
as given by Professor Jevons, such as por-
tability, indestructibility, divisibility, etc.,
further than to say that the qualities he men-
tions are possessed by all of the money ma-
terials now in use, in a sufficient and nearly
equal degree. Coin, to be sure, is more in-
destructible than paper ; but as the paper is
sufficiently acceptable for the purpose, the
difference need not concern us.
Aside from that general acceptability,
which is the very essence of money, with-
out which no commodity could be considered
28 HONEST MONEY.
money, and which, therefore, all money may
be considered as having, the great require-
ments of money are invariable value, added to
convenience of form, size, lueight, and value.
This latter requirement pertains to the
function of a medium of exchange, and the
degree in which it is possessed by the differ-
ent money materials or kinds of money, de-
pends wholly on the values to be transferred
by its use. For small amounts, silver is pref-
erable to either gold or paper ; as the amount
increases, gold becomes preferable to silver;
and for all amounts above fractional cur-
rency, paper money is unquestionably more
convenient in every way than either gold or
silver, and the advantage increases with the
amount.
Invariable value is the great requirement for
both the functions, "a measure of value "
and " a standard of deferred payments." In-
deed these two functions may practically be
considered one ; the only difference between
them being centred in the element of time,
MONEY. 29
and that is more or less involved in every
exchange requiring the use of money, since
some interval must elapse between the sale
of one commodity and the purchase of another
with the money received, which consti-
tutes the whole exchange transaction, and
during such interval the money should main-
tain a constant value. When the interval over
which the transaction is spread is a large
one, as in the case of notes and bonds, any
variability is more noticeable than when the
change is distributed among many holders of
money.
Before considering further the great neces-
sity for invariable money value, it will be
best to consider the laws and forces which
determine and control the value of money.
Money Value.
That money is a commodity, and that its
value varies like that of every commodity
in accordance with the law of supply and
demand, are incontestable.
30 HONEST MONEY.
The fluctuations in the value of money can
be detected, it is clear, in the same way that
changes in the value of any commodity can
be detected, by comparison with all other
commodities, by its average purchasing
power, in short.
The value of a commodity, when measured
by money and expressed in terms of the unit
of money, is called its price. If the prices of
all commodities, or the average of all, rise or
fall, it is conclusive evidence that the value
of money has changed, for its purchasing
power is less in the one case and greater in
the other. Indeed the statement that gen-
eral prices have fallen is equivalent to saying
that the value of money has increased, and
vice versa. Therefore, if the value of money
remains stable, average prices must remain
constant.
The following quotations will show that
these views are correct, and that they are
generally accepted by authorities on finance
and political economy, though very commonly
MONEY. 31
overlooked and neglected in discussions on
the subject.
John Stuart Mill, in his " Principles of
Political Economy," says :
" There is such a thing as a general rise of
prices. All commodities may rise in their
money price. But there cannot be a general
rise of values. It is a contradiction in
terms." " That the money prices of all
things should rise or fall, provided all rise or
fall equally, is in itself, and apart from ex-
isting contracts, of no consequence. It affects
nobody's wages, profits, or rent. Every one
gets more money in the one case and less in
the other ; but of all that is to be bought
with money they get neither more nor less
than before. It makes no other difference
than that of using more or fewer counters
to reckon by. The only thing which in this
case is really altered in value is money ; and
the only persons who either gain or lose are
the holders of money, or those who have to
receive or pay fixed sums of it. ... There
32 HONEST MONEY.
is a disturbance, in short, of fixed money
contracts, and this is an evil whether it takes
place in the debtor's favour or in the cred-
itor's. . . . Let it therefore be remembered
(and occasions will often rise for calling it to
mind) that a general rise or a general fall
of values is a contradiction; and that a gen-
eral rise of prices is merely tantamount to an
alteration in the value of money, and is a
matter of complete indifference save in so far
as it affects existing contracts for receiving
and paying fixed pecuniary amounts."
" The value of a thing is what it will
exchange for : the value of money is what
money will exchange for; the purchasing
power of money. If prices are low, money
will buy much of other things, and is of
high value ; if prices are high, it will buy
little of other things, and is of low value.
The value of money is inversely as general
prices : falling as they rise and rising as they
fall."
"The value of money, other things being
MONEY. 33
the same, varies inversely as its quantity;
every increase of quantity lowering the
value, and every diminution raising it in a
ratio exactly equivalent."
" That an increase of the quantity of
money raises prices, and a diminution low-
ers them, is the most elementary proposition
in the theory of currency."
The expression, "other things being the
same," in one of these quotations, evidently
means "demand remaining the same," and
the terms increase and decrease of money un-
questionably refer to the increase and decrease
relative to demand, since the writer further
says :
" If there be at any time an increase in
the number of money transactions, a thing
continually liable to happen from differences
in the activity of speculation, and even in
the time of year (since certain kinds of busi-
ness are transacted only at particular sea-
sons) ; an increase of the currency which is
only proportional to this increase of transac-
34 HONEST MONEY.
tions, and is of no longer duration, has no
tendency to raise prices."
Per contra, therefore, unless the currency
be increased to meet such increased demand,
there will be a tendency to decreased prices
and consequent change in the value of money.
Stronger statements than these of Mill's,
or by an abler authority, could not be asked
for.
Prof. E. T. Ely, in his " Political Economy,"
remarks, p. 179 :
" Values are merely relative, and conse-
quently there can be no such thing as a
general rise or fall of values."
" Value expressed in money is called price.
There can be such a thing as a general fall
or a general rise of prices. A general fall
in prices means an increase in the value of
money, and a general rise of prices means
a fall in the value of money."
David Ricardo observes that : -
" The value of money, then, does not
wholly depend upon its absolute quantity,
MONEY. 35
but on its quantity relatively to the pay-
ments it has to accomplish."
The last edition of the " Encyclopaedia
Britamrica " says, as a conclusion in discussing
the value of money, and referring evidently
to coin alone :
" The most correct way to regard the ques-
tion of money value is that which looks on
supply and demand, as interpreted above, as
the regulator of its value for a limited time,
while regarding cost of production as a force
exercising an influence of uncertain amount
on its fluctuations during long periods."
This view is in exact accordance with the
conclusions previously stated in regard to
the values of all commodities.
The Encyclopaedia further says :
"Where the coinage of a State is arti-
ficially limited, the value of its money
plainly depends on supply and demand."
Quotations might be multiplied indefinitely
to the same effect ; but enough have been
given to show the general consensus of opinion.
36 HONEST MONEY.
Indeed it may seem that there is no neces-
sity for accumulating evidence in support of
propositions so apparent as those stated;
unfortunately, however, not a few recent
writers have ignored some of them, and the
general public seem to make the same mis-
take ; hence, it is of the utmost importance
that they be kept clearly in mind.
Money Demand and Supply.
Mill affirms that : " The supply of money
is all the money in circulation at the time."
Money that is hoarded has no more effect
on prices than if it did not exist. Money
lying in banks or in the hands of merchants
or others to the extent necessary for the safe
conduct of their business may be considered
money in circulation, but beyond the amount
needed for conducting any business the excess
may be considered as hoarded. The supply
of money in any country depends directly and
primarily on the legislation of that country;
and secondarily, in most, but not in all cases,
MONEY. 37
on the legislation of other countries, and the
production of precious metals available for
coinage, etc., all of which can be better ana-
lyzed in explaining the different systems.
The demand for money is most complicated,
since it is affected by a great variety of forces.
It varies directly with the activity of com-
merce, and universally with the activity of
money, a less amount of money doing a
greater work when active than when sluggish.
It is affected by changes in the customs and
habits of the people, by changes in transpor-
tation facilities, in diversity of employment,
in concentration of population, and, more
than all other, it is affected by the extent
of credit, the use of banking facilities, etc.
Credit in its various forms takes the place
of money, and does its work in this respect
to an enormous and continually increasing
extent. Through the medium of banks,
which are really institutions for the exchange
of credit, and by means of checks, drafts,
notes, bills of exchange, letters of credit, post-
38 HONEST MONEY.
office and express money orders, etc., the great
bulk of the world's business is transacted.
Statistics gathered from national banks in
this country in 1881, showed that of the total
deposits, ninety-five (95) per cent were in
forms of credit to five (5) per cent in actual
money, the percentage of credit paper rising
in New York City to as high as 98.7.
While these percentages may not show
accurately, on the whole, the relative work
done by money and by forms of credit, they
do show the enormous extent to which credit
takes the place of money, and the greatly
increased demand for money that arises,
when, from lack of confidence or other causes,
the extent of the credit is lessened. Unless
the volume of money immediately adapts
itself to such demand, the value of money
must inevitably increase, or the demand be
lessened by a checking of all business transac-
tions, and a partial paralysis of the industries
of the country. Generally both of these
results follow.
MONEY. 39
With these facts in mind, it is evidently
futile to attempt to fix any definite amount
of money, per capita, as the proper one. Not
only does the amount necessary to meet the
demand vary with different countries, per
capita, even among the most civilized nations,
but it varies with the seasons in each country,
as crops have to be moved or not, and with
the state of credit and enterprise from day to
day. France, where the habits and customs
of the people have prevented their making so
large a use of credit and banking facilities
as in England, requires a larger amount of
money, per capita, than does England.
Since the value of money depends on these
two factors, supply and demand, if we are to
have a money of invariable value, we must
evidently control one or both of these. It
would be hopeless to attempt to control all
the various conditions and forces which, we
have seen, affect the demand for money. For-
tunately it is not necessary. TTe cannot con-
trol the demand, but we have, or can have,
40 HONEST MONEY.
complete control over the supply, and we can
by this means maintain that constant relation
between the supply of, and the demand for,
money which is essential to its stability of
value.
Necessity for Invariable Money Value.
Returning to the reasons for an invariable
money value, they are best appreciated by
considering the effects of one that is vari-
able. While the statement of Mill, previously
quoted, " that the money prices of all things
should rise or fall, provided all rise or fall
equally, is in itself and apart from existing
contracts, of no consequence," is true, yet
is it true only under the condition specified,
that all shall rise or fall equally, and this con-
dition in the case of a fluctuating money value
never obtains. Aside from the exception
which Mill makes of fixed money contracts,
which can never adjust themselves at all to a
changed money value, and the exception is
of enormous volume arid importance, the
MONET. 41
prices of many commodities are not adjustable
quickly or readily to a change in money value,
especially when such change is an increase.
There is a persistency or inertia about prices
that in many instances resists a reduction.
Wages can never be reduced without friction
and often strikes. The fact that commodi-
ties have fallen and that the lower wages will
buy as much, or more, than the higher ones
formerly did, is slow of appreciation ; hence
the employer caught between the difficulty of
reducing his employes' wages and the falling
prices of his products, is injured by an in-
creased money value. When the change, on
the other hand, is a decrease of money value,
the employer will not as a rule advance wages
until compelled to do so, and the labourer suf-
fers meanwhile from the rising prices of com-
modities.
When prices fall, the producers of a com-
modity are not apt to recognize that it is a
general fall, a change in money value ; but
accustomed to regard money as invariable in
42 HONEST MONEY.
value, as it should be, and, failing to see any-
thing in the conditions affecting their own
particular product that should lower the price,
they delay or refuse to sell, hoping for higher
prices ; and all, or a large number, doing this,
makes business dull.
The great injury and evil of changing
money value comes, however, through fixed
money contracts. The enormous amount of
bonded indebtedness, railroad, municipal,
county, state, and national, makes the slightest
change of money value of vast importance,
and added to these is the aggregate volume
of commercial and private debts.
In short, a change of money value either
way is a robbery, and none the less repre-
hensible because it is legal and insidious.
Indeed, it is perhaps more damaging in its
secondary effects because of its insidiousness.
An open danger may be guarded against,
but the hidden danger, known to exist, but
which cannot be located or prevented, only
excites fear and distrust, and checks all move-
MONEY. 43
ment. Nor is the damage, in its secondary
effects, confined to those involved in fixed
money contracts. Piracy on the seas or
robbery on a highway, when common, injure
not alone those who are robbed. The fear
and distrust engendered by such occurrences
damage and delay all commerce ; and the cost
of protection against these menaces, or of
avoiding them by taking more circuitous
routes, are a burden on the whole people.
So the robbery by a fluctuating money value
affects, indirectly, the whole community,
while the indirect effects are far worse. In
the case of a decreasing money value the
robbery does not bring such disastrous con-
sequences in its train as where the change
is an increase, owing to the different condi-
tions of the people robbed.
A slight decrease of money value generally
brings about a stimulation of trade and indus-
try, the rising prices of commodities acting
as a spur to greater production and new
enterprises.
44 HONEST MONEY.
Mr. F. A. Walker, indeed, considers that
for this reason, and in spite of the recognized
injustice to some classes, that such a condi-
tion when slight and brought about by natural
causes, is a benefit on the whole. It can
hardly be admitted that robbery of one large
class in a community is defensible, even if it
does result in a gain to another class greater
than the loss to the first. It is indisputable,
however, that the opposite case, where money
is increasing in value, brings such disasters
in its train that it would be better, if an in-
variable value for money could not be attained,
that the variation should be a decrease rather
than an increase. In the latter case not only
is the robbery equally great, but falling upon
the most active, industrious, and enterprising
class of the community, for it is this class
as a rule that are borrowers, it not only
imperils all they possess, but discourages,
when long continued, all forms of industry
and enterprise. In this way it throws thou-
sands of men out of employment and brings
MONEY. 45
suffering and hardship to thousands more.
No other one cause, perhaps, is more respon-
sible for "panics" and "hard times," with
their attendant evils tramps, pauperism, and
crime. Its evils have been painted by many
writers, and it is scarcely possible to exagger-
ate them. Of all ills, war and pestilence
alone seem to fill the cup of human suffering
more nearly full than the depression and
stagnation of industry which is brought
about by constantly declining prices.
In view of these facts, the necessity for
a money that shall vary in its amount in
accordance with the demands of business is
evident. Not only must it respond to the
long-continued, slow, and almost impercep-
tible increase of demand due to growing trade
and population, but it should also respond,
quickly and surely, to those sudden demands,
known as panics, when credit fails for any
reason to do its usual work. This need is
recognized by bankers in their demand for
a flexible or elastic currency.
46 HONEST MONEY.
Quotations are hardly necessary in support
of the foregoing statements, but a few may be
given. David Kicardo, in " Proposals for an
Economic and Secure Currency/' observes
that : -
" All writers on the subject of money have
agreed that uniformity in the value of the
circulating medium is an object greatly to
be desired."
" A currency may be considered as perfect
of which the standard is invariable, which
always conforms to that standard, and in
the use of which the utmost economy is
practised."
"During the late discussions on the bul-
lion question, it was most justly contended,
that a currency to be perfect should be ab-
solutely invariable in value."
Prof. J. L. Laughlin, in "The History of
Bi-metallism in the United States," remarks,
p. 70:-
"The highest justice is rendered by the
state when it exacts from the debtor at the
MONEY. 47
end of a contract the same purchasing power
which the creditor gave him at the begin-
ning of the contract, no less, no more."
Prof. R. T. Ely says, in his " Political Econ-
omy," p. 191 :
" It is not the ' much or little,' but it is the
'more or less' that is of vital concern. Noth-
ing produces more intense suffering than a
decrease in the amount of money, and this is
on account of the connection between past,
present, and future in our economic life."
This refers to a decrease relative to the
demand, evidently, and he says, further :
" If the amount of money is arbitrarily
increased, so that the value of all debts may
fall, it amounts to virtual robbery of the
creditors. When arbitrarily the amount of
money is decreased, it amounts to virtual
robbery of the debtor class."
" It may also be urged that with the prog-
ress of improvements in industry, prices tend
to fall, and that unless money increases in
amount, those who take no active part in
48 HONEST MONEY.
these improvements, nevertheless gain the
benefit of them."
Prof. Sidney Sherwood, in the " History
and Theory of Money," says, p. 225 : -
" The ideal that we want, so far as price
adjustment is concerned, is to keep prices
stable, so that a contract which is payable
in one year from now can be paid with just
the amount of commodities which will then
represent the value stated in the contract
of to-day. . . .
" That is what we want, a stability of
prices that persists from one year to another
and from one generation to another. . . .
" The object at which we aim is, as it
seems to me, a currency which shall keep
prices stable, a currency which shall expand,
therefore, with the expansion of trade and
commerce and development generally, a cur-
rency which shall not be lagging behind the
commerce and development of the country,
and hindering that development, and a cur-
rency which shall not, by being too rapidly
MONEY. 49
increased, lead to excessive speculation and
to loss."
We may summarize these conclusions in
regard to money then as follows :
Money should have an invariable value.
The test of invariable money value is stabil-
ity of prices in general.
The value of money depends on the supply
of it relative to the demand for it.
The demand for money is variable and un-
certain. It is affected by a great variety of
circumstances, most of which are beyond
control.
The supply is in all cases regulated directly
or indirectly by law, and can be controlled.
In any monetary system it is necessary,
therefore, that the supply should adjust itself
quickly and correctly to any changes in de-
mand, so that prices of all commodities shall,
on the average, neither rise nor fall. In this
way, and in no other, can an honest money
be obtained.
It is believed that these conclusions cannot
50 HONEST MONEY.
be successfully controverted, and, using them
as a basis, we now purpose to examine exist-
ing monetary systems, and some proposed
changes therein, to see in how far they con-
form to this requirement, and what can be
done for their improvement.
CHAPTER III.
EXISTING MONETARY SYSTEMS.
VARIOUS substances have been used as
money in the past. The " survival of the
fittest" has, however, eliminated all but three
(omitting fractional coins), and these are
used, singly or in combination, at present
in all the civilized nations of the world.
These three are gold, silver, and paper. Gold
and silver are generally used in the form of
coins of definite weight and fineness. Paper
money is a promissory note issued by the gov-
ernment, or by authorized banks, promising to
pay the bearer, on demand, the amount of
coin specified on its face.
Where this promise is kept, and coin is
paid on demand, the paper is said to be con-
51
52 HONEST MONEY.
vertible. Where, for any reason, the promise
is not kept, and the amount of coin specified
will not be given on demand, the paper is
called inconvertible or irredeemable.
As the coins which are used, and which are
promised to be given in exchange for paper,
may be either of gold or silver, or both, the
system is said to be a gold standard or a silver
standard, according to which one is used, or
a bi-metallic standard if both are used under
certain conditions. At present, as will be ex-
plained in considering that system, there is
no country that is really using a bi-metallic
standard.
Where the paper money is inconvertible,
the coin on which it is based does not cir-
culate with it (for reasons which will appear
later), arid such a system must be regarded
as distinct from the others, no matter whether
the basis be gold or silver. Three systems
are therefore in use, the gold standard, the
silver standard, and the inconvertible paper.
The characteristics of each of these will be
EXISTING MONETARY SYSTEMS. 53
considered separately, but, taken as a whole,
some facts should first be noted.
Money in all countries is at present essen-
tially a creature of the law. Not only does
the government fix the weight and fineness
of the coins, but it assumes the right to make
the coins, and in some cases to limit the coin-
age to a certain amount, or to stop coining
altogether. It also, in most cases, issues
the notes or paper money, and where it does
not it controls the issue by laws regulating
the banks that do issue them. It controls
therefore in all cases the volume of money
issued, both by specifying that it shall be
made of certain metals which are scarce, and
perhaps limiting the coinage of those, and by
limiting the amount of paper money that is
generally used, to a greater or less extent, in
all systems.
There is no international coin or money.
Gold and silver when shipped from one
country to another go as so much bullion ;
their value is practically the same whether
54 HONEST MONEY.
coined or uncoined. As Walter Bagehot
observes, in his work " Lombard Street " :
" Within a country the action of a govern-
ment can settle the quantity, and therefore
the value, of its currency ; but outside of its
own country no government can do so. Bul-
lion is the cash of international trade; paper
currencies are of no use there, and coins pass
only as they contain more or less bullion."
Not only is the value of money as a whole,
in any country, governed by the law of sup-
ply and demand ; but each of these three
kinds of money, and each of the substances
of which they are made, is individually sub-
ject to the same great law.
The Gold Standard.
The wide and long-continued use of gold
as money has led to a popular impression,
current even among well-inforrned men, that
somehow, or in some mysterious way, gold
has stability of value and is independent of
those fluctuations which they recognize in the
EXISTING MONETARY SYSTEMS. 55
values of all other substances. That this is
wholly erroneous is admitted by every writer
on finance, and quotations are hardly neces-
sary to support the statement that gold varies
in value in the same way and is subject to
the same law of supply and demand which
regulates all other values.
Along with this conception of stability in
the value of gold, has grown up a very natural
belief that where paper or silver circulated
concurrently with gold, so long as they were
mutually convertible, gold was the medium
which regulated the value of all ; and that
no matter what the quantities of the others
might be, they did not affect the value of
the gold or of the money as a whole. This
is another popular misconception.
In one sense the gold regulates the value
of the money, but only to the extent that
it limits, under the existing laws, the vol-
ume of the whole by its scarcity. In another
and wider sense the value of the gold is itself
fixed and controlled by the value of the money
56 HONEST MONEY.
in its entirety. The use of gold for money is
so enormously greater than its uses for all
other purposes, that its value as money fixes its
value as a whole, since its money use is by far
the largest factor affecting the demand for it.
The demand for money is generally an
indiscriminate demand, satisfied with paper
money or silver as well as with gold where
they circulate together. Hence, every issue
of paper or increased coinage of silver in any
such country, demand remaining the same,
lowers the value of the money as a whole
by increasing the supply, and since the value
of gold is determined by its value as money,
that is lowered with the rest.
The value of gold varies, therefore, with
that of the money as a whole of which it
forms a part.
In gold standard countries the coinage of
gold is unlimited, and not to speak of the
small mint charges generally free. Under
these conditions the value of gold coin and
gold bullion are the same, weight for weight.
EXISTING MONETARY SYSTEMS. 57
The silver coin, which is used to some ex-
tent in gold standard countries, does not
have either free or unlimited coinage at
present. Its bullion value is less than its
nominal and actual value, which is main-
tained at a par with that of gold by the
limitation of its issue, just as in the case
of paper money, and by the fact that
within the country of issue it does the
same work as the gold, just as paper money
does. Men will give just as much of any
commodity for the silver coin or the paper
as they will for the gold, because, their util-
ity being the same, their exchange value must
also be the same.
With these facts explained, we can proceed
to consider a very important law affecting the
value of money and its distribution among
different nations.
Greshams Law.
It was noticed and stated many years ago
by Sir Thomas Gresham that full- weight coins
58 HONEST MONEY.
would not continue to circulate with clipped,
worn, or light-weight ones, and that the latter
would drive the former out of the country.
This statement has been extended and en-
larged into what is known as Gresham's Law,
which, as generally formulated, is that a
poorer money will drive a better one out of
circulation. In this form it is commonly
accepted as true, but is often misunderstood
and misapplied.
It is, in fact, but a particular case of the
more general law that any commodity will
seek the market where it is worth the most,
where it will exchange for the most of other
commodities.
The full-weight coins would exchange for
no more in the country of issue than would
the light-weight ones (within certain limits),
but when it was desired to ship coins to other
countries where they were valued by weight
and not by tale, the full-weight ones were
more valuable, and were, therefore, selected
for such shipment, leaving the poorer ones
to circulate at home.
EXISTING MONETARY SYSTEMS. 59
The larger application of Gresham's law
to money as a whole is as follows :
The resultants of all the various forces
acting on money value through supply and
demand evidently must be different in differ-
ent countries, and thereby may cause the
money of one country to rise in value while
that of another falls. When this occurs be-
tween two countries using the same metal as a
part of their money, that is, either between
two gold-standard or two silver-standard coun-
tries, Gresham's law immediately operates to
bring the two moneys again to a uniform value.
Since the gold varies in value with the
money as a whole, it will, under such circum-
stances, be worth more in the country having
the higher money value than in the other,
and a flow of gold will set in from the coun-
try where it is worth the least to the one
where it has the greater value. This flow of
gold decreases the amount of money in the
country from which it goes, and increases the
amount in the other, thus raising the value
60 HONEST MONEY.
of money in the one, and lowering it in the
other, until they are again on an equality
within the limits of the cost of shipping gold
from one to the other.
The operation of this law, therefore, tends
to make the value of money uniform, and
average prices the same in all countries using
the same standard.
The gold which thus flows from one country
to another does not go, of course, without a
return of other commodities in exchange. The
operation will be clearer if stated in its con-
verse form.
Since prices and money values are comple-
mentary terms, one rising as the other falls,
and vice versa, a rise in the value of money
means lower prices, on the average, in that
country. People will buy in the cheapest
market, and if prices are lower in one country
than in others, they will buy in that country
in preference to others ; the balance of trade,
as it is called, will be in their favour ; gold
will be sent in payment for the commodities
EXISTING MONETARY SYSTEMS. 61
bought ; it will increase the money supply and
raise prices there, and at the same time it
will lower those of the country from which
it goes until prices in the two are again on a
level.
It must not be supposed, however, as it
evidently has been by some, that the opera-
tion of this law in regulating prices and mak-
ing them uniform as between different coun-
tries at the same time, has any effect whatever
on prices and money values as between two
different periods.
An increase or decrease of money value
may go on simultaneously in all countries,
and no flow of gold be caused ; the value of
gold would continue to be the same in all
countries, yet might be much higher or lower
at the end than at the beginning of the
period.
To illustrate : the different countries may
be compared to several tanks connected at
the bottom by pipes, and containing water,
the level of which, representing money value,
62 HONEST MONEY.
is . continually fluctuating with the amounts
of water added to or drawn from each of the
tanks. If the water rises higher in one tank
than in others, a flow will set in from the
higher to the lower until all are again on a
level ; but if the cause of the rise in the one
tank continues, or if the cause extends to all
the other tanks, the level in all the tanks may
be greatly changed.
So the continued preponderance of the
forces in one direction, operating either to
decrease or increase money value in one coun-
try alone or in all together, will raise or
lower that value in all the countries which
are connected by the use of the common
money metal, under a free coinage system.
Thus the large discoveries of gold in one
country will by this means gradually spread
themselves over all gold-using countries. The
country where the gold is discovered, is, of
course, the richer by the amount discovered,
and is none the poorer because of its flow to
other countries, for such country receives the
EXISTING MONETARY SYSTEMS. 63
same value of other commodities in exchange
for the gold.
Through the medium of gold, therefore,
general prices are maintained at the same
level approximately in all gold-standard
countries.
The great defect of the system is, that, be-
cause of this mutual bond, no one country can
adjust the volume of its money to the demand
so as to maintain prices constant. Only by
an agreement faithfully carried out by all, or
by most of the leading countries, would this
be possible. There is no such agreement now
existing, nor any likelihood of the leading
nations agreeing to do this, and the value
of money in all gold-standard countries is
the resultant of all the various forces that act
upon its supply and demand, with no intelli-
gent attempt to control either ; it is, in fact,
the foot-ball of politics, selfish interests, and
chance.
Neither the annual supply of gold nor the
total amount used as money is the princi-
64 HONEST MONEY.
pal factor in determining its value. It can-
not be doubted that if all the nations now
using the gold system were to abandon it,
the value of the metal would be but a fraction
of its present value, and on the other hand,
if all the nations now using silver and paper,
in whole or in part, as money, were to change
to the gold standard, its value would be in-
creased to many fold what it is now. The
legislation, therefore, of all countries is the
great factor determining coin value, not alone
in the country legislating, but also in all
other countries using gold and silver as a
basis for their system. The factor next in
importance is the extent to which credit is
used in the place of money. The total pro-
duction of gold is so small beyond the amount
used in the arts and sciences that it would
require a great change in its value, and years
of time, for any increased production due to
higher value to affect materially the quantity
of gold coin in use. The production of gold
depends more on chance, and less on its labour
EXISTING MONETARY SYSTEMS. 65
cost, than the production of almost any other
commodity ; and though it would be, and is,
stimulated somewhat by a higher value, there
is no such certainty of its increased produc-
tion being commensurate with the increased
labour expended on it as there is in the case
of most commodities.
The Silver Standard.
When the money system of a country is
based on silver, and that metal has free and
unlimited coinage in the mints, as gold has
in countries using the gold standard, the same
laws apply as in the case of gold. Exactly
the same forces operate to affect the volume
and value of the money except that the pro-
duction of silver, its use by other nations, etc.,
are the factors, instead of gold supply and
use. The coin and the bullion are equal in
value, weight for weight, and Gresham's law
applies the same as it does to gold to regulate
the flow of silver from one silver-standard
country to another
66 HONEST MONEY.
In some silver-standard countries, however,
the coinage is not free and unlimited, the
government purchasing the silver at its
market rate and coining it in such quan-
tities as it sees fit. In this case the bullion
value does not coincide with the coinage
value : the latter depends entirely on the
amount that is coined, relative to the demand
for money, and is independent of the bullion
value of the silver. The coin will be of
higher value than the bullion, and will not be
exported to other countries, as the bullion is
equally valuable for that purpose and less
costly. It is evident that the value of money
is just as dependent on chance, that is, on
a variety of causes too intricate and uncertain
to be controlled, in the case of the silver
standard with free coinage as in the case of
gold ; but as some of the forces acting on
silver are different from those acting on gold,
one standard may be much more stable than
the other.
EXISTING MONETAKr SYSTEMS. 67
i-metal1ism.
The theory of bi-rnetallism a money
founded upon both gold and silver coin
is based upon the fact, before stated, that
the value of each of these metals is really
determined by the value of the money, as
a whole, of which they form a part their
use for money purposes being so much greater
than their other uses as to be the determining
factor. If all nations, or a sufficient number
of the leading ones, agree to coin both gold
and silver in any amounts presented, and
at the same ratio, the values of each relative
to the other will be fixed at that ratio. No
other market could be found for either metal
at a higher ratio. The plan requires, of
necessity, free coinage of both metals by
several nations and in the same ratio. If
the ratio differs in different countries, or if
there are too few countries that are party to
the agreement, the operation of Gresham's
law will separate the two metals, and cause
68 HONEST MONEY.
each to seek the country where it is worth the
most as measured in the other. The supply
of each metal is independent of the other,
and their values, therefore, can only be kept
the same by a control and adjustment of the
demand thereto.
Where silver and gold are both coined
freely at a fixed ratio, if the supply of gold
decreases, a portion of the demand for that
metal - - it being more valuable than silver
would be immediately transferred to silver,
raising the latter and lowering the former
value, and thus keeping their values at the
same ratio. This, however, would not neces-
sarily keep the value of the money constant
as regards general commodities, and prices
would still fluctuate. The variations would
be spread over both metals, and, as shown
by Jevons and others, would probably be
more frequent, though less extensive.
Theoretically, therefore, a bi-rnetallic stand-
ard is little if at all better than a single
standard. Whether it would be better or
EXISTING MONETARY SYSTEMS. 69
worse than gold or than silver would depend
altogether on the conditions at any particular
time, and it is therefore as much the victim
of chance as either of the metals alone, so
far as providing a money of stable value is
concerned.
As already stated, no nation is now using a
bi-rnetallic standard. Countries like France
and the United States, which nominally have
the double standard, have long since restricted
or stopped the coinage of silver and are really
on a gold basis, their silver coins being at par
with gold and worth much more than their
bullion value.
Prior to about the year 1873 these nations,
as well as several others, coined silver as well
as gold in any amount presented, and all
nations using coin were practically on a bi-
metallic basis, the ratio between gold and
silver values having been maintained at 15 k
to 1 (the coinage ratio in Europe) for many
years within narrow limits. The United
States had adopted the ratio of 15.988 to 1
70 HONEST MONEY.
long before this time, and as a result the
silver had all left this country in obedience
to Gre sham's law, as it was worth more
relative to gold in Europe.
About the date above mentioned there
was a great change in the coinage laws of
several countries. Germany changed to a
gold basis, selling a large stock of silver;
France and other nations also practically
changed to a gold basis by stopping the
coinage of silver. As a result of this the
relative values of silver and gold changed
considerably. The demand for gold increased,
and the demand for silver decreased. Silver
fell gradually in value relative to gold, and
this effect was further affected by large dis-
coveries and greater production of silver.
The United States also stopped the free
coinage of silver at about the same time as
the other countries, but this had no imme-
diate effect on the relative values of the two
metals, for this country was at that time, and
for several years afterward, using an incon-
EXISTING MONETARY SYSTEMS. 71
vertible paper money no coin of either
kind being in circulation. It had, however,
a large subsequent effect ; for when the
United States returned to a specie basis, if
the coinage of silver had not been stopped,
silver would have been coined in preference
to gold, being the cheaper, and this country
would have been on a silver rather than on a
gold basis.
Paper Money.
Paper money differs radically from coin in
one respect. Its circulation is confined to the
country of issue. It may indeed be confined
to a small part of such country as in the
case of some of the old bank notes when
the solvency of the issuing power is unknown
or uncertain. This, however, may be regarded
as an abnormal case.
When issued by the Government or by
authorized banks whose solvency is unques-
tioned, it is accepted as freely as coin, and if
not so accepted, cannot be considered good
72 HONEST MONEY.
money. We shall consider only the case
where it is generally accepted.
Being usually a promise to pay coin, on de-
mand, it can, in one sense, be considered hon-
est only when the promise is kept. If the
issues are excessive, that is, if by increasing
the volume of the money as a whole its value
is lowered so that the coin is worth more
in some other country than as a part of that
money system, the coin will leave the coun-
try, as has been explained in regard to gold.
The paper simply acts as so much gold or
silver would act if added to the currency,
forcing out a certain amount of coin. Where
both metals are used with the paper, the one
to go would depend on which was worth the
most, relatively, in other countries. If the
issues of paper are continued long enough,
all the coin will leave the country, and, if still
continued, the value of the money will sink
below that of the coin, as the paper will not
leave the country, but will accumulate, lower-
ing the value with each new issue. The
EXISTING MONETARY SYSTEMS. 73
system will then have changed to an incon-
vertible paper system, the value of the money
being no longer dependent on the value of
the coin on which it is based, and no longer
affected by changes of money value in other
countries, but determined wholly by the
amount issued, relative to the demands of
business in the country of issue.
If the issues continue in excess of demand,
the value will lower, even to the point of ut-
ter worthlessness ; but if properly controlled
and limited, the value of the money can be
maintained at any point desired far more
readily and easily than in the case of a con-
vertible paper and coin system, since many
variable forces are excluded when the con-
vertibility is dropped.
The amount of paper money that can be
kept at par with coin under a convertible
system bears no fixed relation to the amount
of the coin. By a proper control of the vol-
ume of paper issues their value can be kept
equal to coin value, with almost no coin in
74 HONEST MONEY.
circulation, or in reserve. An excessive issue
of the paper will cause coin to be exported,
but this export may be checked, and an im-
port produced by withdrawing some of the
paper.
Some control, therefore, may be exercised
over the value of money under a convertible
system, to make such value constant, but this is
evidently limited. If the value of the money
is falling, the decline can be checked, and its
value made to rise, by withdrawing some of
the paper issues ; but this will cause an impor-
tation of coin, partly offsetting the reduction
and checking such rise, and when all the
paper has been withdrawn, the power of
control by this method ceases. If the money
value is rising, an increase of paper issues
will stop such rise, but it will cause the expor-
tation of coin ; and when all the coin has been
exported, the money will cease to be converti-
ble, and the system will have changed to an
inconvertible one, the money still possessing
the same qualifications as a measure of value
EXISTING MONETARY SYSTEMS. 75
that it possessed in the former case. The
only difference is, that in the convertible
system the money value is partly determined
by the natural causes affecting the supply of
coin, partly by the laws and conditions of busi-
ness in foreign countries, and partly by the
legislation at home, restricting the coinage or
the issue of paper ; while in the inconvert-
ible system it is determined wholly by the
control of the issues relative to the demand
for money.
This difference may constitute either a
merit or a defect, according as the control
is intelligent and honest or otherwise.
The disastrous consequences that have
resulted at various times from the use of
inconvertible paper money, have, in every
case, been due to a lack of proper control
and to excessive issues, caused generally by
the want of a reliable gauge by which to
determine the amount that should be issued,
and by a misunderstanding of the principles
involved.
76 HONEST MONEY.
While paper money, though a promise to pay
coin, cannot, in one sense, be called honest,
unless the promise is kept; in a larger sense
the test of its honesty is its invariability
of value.
John Stuart Mill says of inconvertible paper
money:
"In the case supposed, the functions of
money are performed by a thing which de-
rives its power of performing them solely
from convention ; but convention is quite
sufficient to confer the power; since noth-
ing more is needful to make a person accept
anything as money, and even at any arbi-
trary value, than the persuasion that it will
be taken from them on the same terms by
others. The only question is, what deter-
mines the value of such a currency ; since
it cannot be, as in the case of gold and sil-
ver (or paper exchangeable for them at pleas-
ure), the cost of production. We have seen,
however, that even in the case of metallic
currency, the immediate agency in de term in-
EXISTING MONETARY SYSTEMS. 77
ing its value is its quantity. If the quantity,
instead of depending on the ordinary mer-
cantile motives of profit and loss, could be
arbitrarily fixed by authority, the value would
depend on the fiat of that authority, not on
the cost of production.
" The quantity of a paper currency not
convertible into the metals at the option of
the holder can be arbitrarily fixed ; espe-
cially if the issuer is the sovereign power of
the State. The value, therefore, of such a
currency is entirely arbitrary."
Prof. F. A. Walker, in his " Money, Trade,
and Industry," observes, p. 210:
" After looking at this subject from every
side, I am at a loss to conceive of a single
argument which can be advanced to support
the assertion of the economists, that paper
money cannot perform this function of meas-
uring values, so-called. On the contrary, it
appears to me clear beyond a doubt, that
just so long and just so far as paper money
obtains and retains currency as the popular
78 HONEST MONEY.
medium of exchange, so far and so long it
does and must act as the value denominator
or common denominator in exchange. And
I see no reason to believe that in this single
respect, hard money, so-called, possesses any
advantage over issues of any other form or
substance which secure the degree of general
acceptance which is necessary to constitute
them money."
He says, further, on p. 214 :
" Such mone} 7 , so long as its popular ac-
ceptance remains undiminished, performs the
office of a standard of deferred payments well
or ill, according as its amount is regulated."
Paper money is a real economy over gold
and silver. Its use substitutes for those coins,
that involve much labour in their production,
a money of slight labour cost, which, under
proper control, performs the functions of
money even better than the coin.
If, in any country possessed of the gold
basis system, the gold product was wholly
deposited in vaults, and paper certificates
EXISTING MONETARY SYSTEMS. 79
issued therefor to the amount of the deposits,
such certificates, if in proper form and de-
nominations, would answer all the require-
ments of a circulating medium even better
than the gold, and their value would be
exactly the same as that of the gold they re-
placed. By this method, in a measure, the
English system, the country saves the wear
and tear, besides considerable loss of gold,
and is better served. The gold thus de-
posited, except a comparatively small amount
shipped abroad at times, would never be called
for : its sole purpose would be to regulate by
its scarcity the amount of the paper money
issued ; beyond this purpose, it might as well
be iron or lead as gold, or might as well have
remained in the mines, from which it was dug
at the expense of so much labour, as to be in
the vaults.
It would be difficult to conceive of a method
of controlling money volume and value more
expensive, more clumsy, and more inefficient
than this ; for, it is to be noted, the control in
80 HONEST MONEY.
no way adjusts the volume of money to the
demand, so as to maintain a stable value, but
merely adjusts the value to that ruling in other
countries, a matter, as we shall see later, of
no importance whatever.
CHAPTER IV.
STABILITY OF GOLD AND SILVER VALUES.
Gold- Standard Prices.
HAVING considered theoretically the lim-
itations and possible merits and defects of
the money systems now in use, we shall next
consider in how far the money under such
systems conforms in practice to the chief re-
quirement, stability of value.
Economic writers do not claim that either
gold or silver is, or has been, of invariable
value; but many of them do claim that gold
is more nearly invariable than any other com-
modity, and that it is sufficiently so for
money purposes, the changes in value being
slight and covering long periods of time, so
that from year to year they are almost im-
G 81
82 HONEST MONEY.
perceptible. Other writers claim that silver
has been, of recent years at least, more sta-
ble in value than gold, and is therefore a
better measure of value.
The merits of these claims can be tested, in
the same way that the stability of value of
any commodity can be tested, by a com-
parison of the average purchasing power of
each metal at different times.
Prof. F. A. Walker, in the work already
cited, observes, regarding money value under
the gold standard as tested by average
prices :
" Not to speak of the enhancement, many
fold, of the value of money through the Sil-
ver Famine of the Middle Ages, or of the
sudden and extensive decline which has been
referred to as taking place between 1570 and
1640, it is estimated by Professor Jevons that
the value of gold fell 46 per cent, between
1789 and 1809, that from 1809 to 1849
it rose 145 per cent., while between 1849
and 1874 it fell again at least 20 per cent."
STABILITY OF GOLD AND SILVER VALUES. 83
Coming down to more recent times, we
have more full and accurate data, and there
have been several careful compilations and
averages of prices made in different coun-
tries. The report of the Finance Committee
of the United States Senate, 52d Congress,
on "Wholesale Prices, Wages, and Trans-
portation," known as the "Aldrich Report,"
is doubtless the most accurate and complete
examination of prices in this country from
1840 to 1892 that has ever been made. This
report also gives for comparison the tables of
Soetbeer and Sauerbeck (two of the most
distinguished European statisticians), and the
table of the Economist (London) as to for-
eign prices, all reduced to the same basis,
and to United States money units in gold.
In order to facilitate comparison of these
data, the tables have been platted as diagrams
in Plate 1. All the tables were prepared by
taking the prices of a selected list of com-
modities for the year 1860 as 100, and cal-
culating the variations in the price of each
84 HONEST MONEY.
commodity from the price of that year as
a percentage of rise or fall. The average of
these percentages for each year represents,
therefore, average prices for that year, as
compared with 1860, and it is these averages
which are platted in the diagrams.
The list of commodities selected by the
Senate Committee embraces 223 articles for
the years subsequent to 1860. Prior to that
time the number was less, varying from 85
to 223, according as data were to be had.
Dr. Soetbeer's table shows prices in the
port of Hamburg, Germany, of 100 com-
modities, mostly raw materials, joined with
the export prices of 14 commodities (manu-
factures) in England, from 1851 to 1891.
Mr. Sauerbeck's table shows English prices
of 56 commodities from 1846 to 1891.
The Economist table also shows English
prices of twenty-two commodities from 1860
to 1892.
The discrepancies between these different
authorities, as shown by the variations in the
STABILITY OF GOLD AND SILVER VALUES. 85
lines of the four diagrams, call for a few words
of explanation.
It would naturally be expected that some
differences in average prices would exist be-
tween different countries, and part of the dis-
crepancies may be accounted for in this way,
since there are included in all the tables, among
other commodities, such as wood and coal,
of which the prices might vary considerably
in different countries independently of one
another.
Several changes in the tariff in this country
during the last fifty years would account for
some discrepancies between United States
prices and the others. Furthermore, the
method by which these tables were in the main
prepared, that of taking simple averages of
the percentage of rise or fall in price, thus
giving to each commodity the same weight
in the result, regardless of its importance in
commerce, is open to serious objection, and
doubtless accounts for many of the discrep-
ancies that exist. For example, the great
86 HONEST HONEY.
rise in prices during the period of our civil
war, as shown in the Economist and the
United States tables, above those shown in
the other two tables, is doubtless due to the
fact that in the Economist table, four out of
the twenty-two commodities in the list are
either raw cotton or cotton manufactures, and
the great rise in price of cotton during the
war (a rise of from 300 to 400 per cent.) is
given an undue importance in the result. The
same cause may affect the United States table,
to some extent, but a more potent factor in
this table is the circumstance that this country,
during the period, was using an inconvertible
paper money in which all prices were ex-
pressed, while gold was a commodity subject to
speculation, and the price of which was much
affected thereby ; and, in reducing currency
prices to gold prices, for this table a somewhat
abnormal result is produced.
The Economist list, it must be said, contains
too few commodities to be a reliable index of
all.
STABILITY OF GOLD AND SILVER VALUES. 87
The United States list is sufficiently large,
but the articles selected may be open to some
criticism.
The lists of Mr. Sauerbeck and Dr. Soetbeer
are preferable, but all are open to the objec-
tion, above noted, of not giving a weight to
each commodity in proportion to its impor-
tance, and none of them can therefore be
regarded as anything but approximations to
the truth. They embrace, however, the best
information on the subject extant.
The United States Committee did, in fact,
endeavour to balance their own list in accord-
ance with the relative importance of the arti-
cles in another table, but the result is not
wholly satisfactory, as the weighting of the
averages was done by groups of articles in-
stead of individually for each. It represents,
however, probably the most accurate informa-
tion as to the purchasing power of gold in
this country from 1840 to 1892 that can be
obtained, and as such has been platted in
Plate 2, in a reverse form ; that is, assuming
88 HONEST MONEY.
that the 223 articles of the list, weighted
according to their importance, fairly repre-
sent all commodities, and that therefore their
value as a whole is constant (since the values
of all commodities cannot rise or fall simulta-
neously). The diagram shows the relative
values of gold for the different years as a
percentage on the value of 1860 taken at
100. In other words, it shows the relative
a.verage purchasing power of gold in this
country in the different years.
With these explanations of the diagrams,
and the limitations of the tables from which
they were platted, we can proceed to consider
their points of resemblance and what they
teach.
It is evident from all of them that a great
decline in average prices has been going on,
almost continuously, since 1873, in the various
commercial countries. This is a fact conceded
by all students of prices.
What is equally apparent, however, but
does not seem to be so generally appreciated,
STABILITY OF GOLD AND SILVER VALUES. 89
is the violent fluctuation in prices, or in
the value of gold, from one year to another,
amounting in many instances to from 5 to 10
per cent, in a single year, and, during the war,
to much more. Doubtless if the tables had
shown the fluctuation of prices by months or
days, instead of the averages for each year, a
much greater variation in the value of gold
would have been apparent at times, and within
a shorter period than a year. Furthermore,
the prices of staple commodities (and most of
the commodities in all the tables are staples),
while representing correctly the character of
the changes in price of all commodities,
would naturally not vary as much as the
prices of many more speculative articles of
commerce. It is probable, therefore, that gold
has varied in value to a greater extent, and
within shorter periods, than is shown by the
diagrams.
It would be impossible to trace all the vari-
ous causes that have produced these changes
in money value, but a few of the more promi-
90 HONEST MONEY.
nent ones may be indicated as showing their
great variety and force.
From 1840 to 1849 a great decline in prices
is noticeable, similar to the decline that we
know has been going on in the last twenty
years. This is doubtless due in both cases
mainly to increasing demand for money,
caused by growing population and expanding
commerce, and which the supply of gold and
silver or substitutes therefor did not keep
pace with. From 1850 to 1857 prices gen-
erally rose, owing to the increased gold pro-
duction in Australia and California, aided
doubtless by the increased use of credit which
rising prices always stimulates. The collapse
of this credit in the panic of 1857 sent
prices down again. The slow recovery from
this condition was greatly enhanced by the
breaking out of the Civil War, during which
thousands of men were destroying instead
of producing, thus raising the prices of nearly
all commodities by decreasing the supply and
increasing the demand relative to gold, while
STABILITY OF GOLD AND SILVER VALUES. 91
meantime the demand for gold was lessened
by the use of paper money in this country.
The disbanding of the armies at the close of
the war, and the return of labour to produc-
tive enterprises, lowered prices rapidly during
1867, 1868, and 1869. From this depres-
sion they recovered almost as rapidly in the
era of development from 1869 to 1872, the
large production of silver from the Nevada and
other discoveries during that period assisting
greatly in this recovery, and the usual exten-
sion of credit at such times also contributing.
This credit collapsed in the panic of 1873,
and the demonetization of silver by several
European nations about the same time pre-
vented any increased production of silver from
affecting the decline which then set in, and
which has with one or two reactions been con-
tinuous ever since.
In the light of the facts, shown by these
diagrams, any claim for even approximate
stability of value for gold, or for the money
as a whole on the gold basis, under the sys-
92 HONEST MONEY.
terns now in use, is preposterous. Moreover,
the change has been, of late years, of the
worst kind, an increase of money value.
If it were steady, its effects could be calcu-
lated and discounted to some extent, but
caused, as it is, by a variety of forces of vary-
ing strengths, the increase is at some times
wholly nullified, or even turned to a decrease,
by extensions of credit, while again it is
doubled in effect by the withdrawal of such
credit.
The reason for this great decline in prices,
or the increased value of gold, is not far to
seek when we consider the relative strengths
of the forces acting on gold value. Popula-
tion, wealth, and diversity of occupations have
all increased greatly over the whole civilized
world, requiring a much greater amount of
money to do the business of the world.
There has been, to be sure, as an offset to
this, a considerable increase of banking facili-
ties and some greater use of credit paper in
its various forms ; but all these were in large
STABILITY OF GOLD AND SILVER VALUES. 93
use prior to 1873, and their increase can
hardly have been so great as to meet the
demands of growing commerce. Furthermore,
of the other forces tending to raise the value
of gold, the annual product of that metal has
not increased materially, though the demand
for it for other than money purposes has
increased largely, leaving a less increment to
neutralize the waste and to increase the sup-
ply of it. And lastly, many countries, as we
have seen, about the year 1873 so changed
their monetary laws as to use a much greater
amount of gold, and a less amount of silver
or paper. The United States alone, it is esti-
mated, now uses about $600,000,000 of gold
coin, while in 1873 it used practically none.
The effects of this increase in the value of
money have been as the effects of falling
prices always are detrimental and disas-
trous in all gold-standard countries, to an
extent that cannot be measured. Offset at
times by increased use of credit, enterprise
and industry have been able to rise to a
94 HONEST MONEY.
success that an honest money would make
their normal condition, only to be dashed
down again by the collapse of credit with
nothing to take its place.
Silver- Standard Prices.
There is a quite prevalent belief that the
value of silver has fallen greatly since 1872.
This is a natural sequence to the belief that
gold has been stable in value, as the gold
price of silver has declined from $1.32 per
ounce in 1872, to $0.82 per ounce in 1892
(and since then the decline has been much
more). This fall of about 38 per cent, must
be deducted from the rise of from 24 to 41
per cent, (according to the different authori-
ties) in the value of gold, in order to show
the true change in the value or purchasing
power of silver. It is evident, therefore, that
the value of silver has been much more nearly
constant than that of gold.
This is confirmed by the statement of
Mr. David A. Wells, in his work on " Recent
STABILITY OF GOLD AND SILVER VALUES. 95
Economic Changes," p. 236. There, Mr.
Wells remarks :
" In exclusively silver-using countries, like
India and Mexico, the decline in the value of
silver has not appreciably affected its pur-
chasing power in respect to all domestic
products and services ; but the silver of such
countries will not exchange for the same
amount of gold as formerly, and it might be
supposed that, owing to this change in the
relative value of the two metals, the silver
of India, Mexico, and other like countries
would purchase correspondingly less of the
commodities of foreign countries which are
produced and sold on a gold basis. But the
people of such countries have not thus far
been sensible of any losses to themselves
thereby accruing, for the reason that the gold
prices of such foreign commodities as they
are in the habit of buying have declined in a
greater ratio since 1873 than has the silver
which constitutes their standard of prices."
He also says, in an article in The Forum
96 HONEST MONEY.
for October, 1893 : " Testimony was given to
the recent British Commission on Indian cur-
rency, that within the last twenty years half
of the silver prices of commodities in India
have risen and the other half fallen."
In Plate 2, the dotted line shows the varia-
tions in the value of silver since 1872. This
diagram is platted from calculations of the
percentage of decline in the gold price of sil-
ver, taking the price of 1872 as 100 (this
was also practically its price from 1840 to
1872, since the ratio of 15| of silver to 1 of
gold was maintained within narrow limits
during that time), and deducting these per-
centages of decline from the percentage of
increase in gold value.
In considering the relative constancy in the
value of gold and silver, the lines represent-
ing each should be compared with the level
price line of these metals in 1872. It will be
noted that while silver has kept closer to this
line than has gold, and on the average has
varied but little from it, yet the fluctuations
STABILITY OF GOLD AND SILVER VALUES. 97
in the value of silver from year to year are
quite as marked as in the case of gold.
It will also be noticed that prior to 1872,
under a bi-metallic standard, both metals,
while maintaining a constant relation to each
other, fluctuated in value quite as extensively
as either alone has done since.
The facts here shown as to the experience
of this and other countries for the past fifty
years, bear out the theoretical conclusions
before stated, that the value of money, under
any of the systems that have been used, is
subject to violent fluctuations from year to
year, due to a great variety of causes which
are entirely beyond control, and that neither
silver nor gold singly, nor both combined,
has ever proved a reliable standard of value.
CHAPTER V.
CRITICISM OF SOME GOLD-STANDARD
ARGUMENTS.
BEFORE proceeding with the main line of
this argument, we will digress to notice some
of the arguments put forth in support of the
stability of the value of gold by those who
cannot but recognize the great fall in general
prices.
While such writers do not deny the truth of
the fundamental principles we have already
considered, they either forget or ignore them.
Notable among such writers is Mr. David
A. Wells, and as his views may be taken as
representative of many others, some state-
ments from his article in Tlie Forum for
October, 1893, previously mentioned, are here
selected for criticism.
GOLD-STANDARD ARGUMENTS. 99
In the beginning of that article, as well as
in his work, " Recent Economic Changes," he
clearly recognizes and states that there has
been a great and universal decline in the
prices of a variety of commodities within the
last thirty years. He claims, however, that
such a general fall of prices does not prove
that the value of gold has increased, for the
reason that, as he endeavours to show, such
fall in prices was caused by lowered labour
cost of production, due to improved machinery,
better methods, greater division of labour, etc.
All these facts may be freely admitted ; the
error lies in supposing that it makes any
difference what the cause is. Since value is
a relation, it will be altered by a change in
either of the terms between which that rela-
tion exists, and it is immaterial whether a
day's labour produces more commodities in
general, and the same amount of gold, or a
less amount of gold, and the same amount of
commodities in general, as compared with
some former period. The value of gold, other
100 HONEST MONEY.
things being the same, is greater in both cases.
The fact remains that if gold exchanges for
more commodities in general than formerly,
its value has risen. It is not clear what Mr.
Wells' conception of value is, on which his
arguments are based. He, however, seems to
regard the labour that a commodity will pur-
chase as the measure of its value, since he
says, in the magazine article : " And then, in
respect to the one thing that is everywhere
purchased and sold for money to a greater
extent than any other, namely labour, there
can be no question that its price measured
in gold has increased in a marked degree
everywhere in the civilized world during the
last quarter of a century."
" Measured by the price of labour, there-
fore, gold has unquestionably depreciated ;
and can anybody suggest a better measure
for testing the issue ? "
The fallacy of using labour in any form as
a test of value was pointed out in the chapter
on value. That the labour a commodity will
GOLD-STANDARD ARGUMENTS. 101
purchase is not in any way a standard of value,
as between two different periods, has been
shown by almost every economist from Ricardo
down to the present time.
The above quotations, in connection with
the following from the same article, bring
to light an important phase of the subject,
which it may be well to make clear. Mr.
Wells remarks :
" A decline in prices, by reason of an im-
pairment of the ability of the people of any
country to purchase and consume, through
poverty or pestilence or by reason of the mis-
application of labour and capital, i.e. waste,
... is certainly an evil. But a decline in
prices caused by greater economy and effec-
tiveness in manufacture and greater skill and
economy in distribution, in place of being a
calamity, is a blessing and a benefit to all
mankind."
With growing knowledge, and the advance-
ment of the arts and sciences, there is a con-
tinual improvement in methods of production
102 HONEST MONEY.
and distribution, enabling the same amount
of labour to produce and distribute to con-
sumers a far greater amount of commodities
in general than it formerly could. This has
been conclusively shown in detail by a mass
of statistics in Mr. Wells' book. The question
arises, to whom should this increased product
properly belong ?
For the purpose of this inquiry the com-
munity may be considered as divided into
three separate classes, according to the source
from which their principal income is derived ;
viz.
(1) Labourers, including all whose income
is principally derived from their work, of
hand or brain, whether as wages, salaries, or
products directly created.
(2) Employers of labour, including all
whose income is mainly derived from invest-
ments of capital directly in productive enter-
prises in the widest sense of the term, those
who take the risks of business incident to the
doing of the work of the community.
GOLD-STANDARD ARGUMENTS. 103
(3) Money lenders, those whose income
is derived from interest on loans ; who, not
wishing to take the risks and cares of active
business, prefer to loan their capital to others
who will do so, accepting as their share of
the profits a definite amount as interest.
The incomes of many people are derived,
of course, from all three of these sources, but
they may be considered as belonging to the
class determined by their greatest revenue.
It is evident that labourers should have a
share of the increased product that greater
skill, improved methods, machinery, etc.,
create ; since labour is the direct cause of such
increase, and not only the greater skill but
the improved methods are due to labour.
Equally evident is it that the capitalist
who has taken the risks of business and
whose wealth and enterprise have contributed
to the results, should also share in the in-
creased product.
But all considerations of justice and equity
forbid that those who, declining to take any
104 HONEST MONEY.
risk themselves, prefer to loan their capital to
others at a fixed compensation, should receive
any share of the increased product which
labourers and employers may succeed in creat-
ing, beyond such fixed compensation. Justice
is satisfied when to them is returned the value
they loaned with the interest agreed upon for
its use.
It must not be forgotten that what is
really loaned is capital, commodities in
general, not money ; the money is only a
medium for effecting the transfer, and a
measure of the capital transferred. What
should be returned, therefore, in repayment
of a loan is the same amount of commodities
in general that was borrowed, the same
value.
It is not meant that bond-holders and
money-lenders should be entitled to no share
in the generally bettered condition of man-
kind due to lowered labour cost of producing
commodities. They should, and in the long
run would, receive their full share, through
GOLD-STANDARD ARGUMENTS. 105
the higher rate of interest that increased
general profits would bring if money value
were constant, and by this means would ob-
tain a just share, determined by open com-
petition and not an unjust share, determined
by the insidious device of a varying measure.
It is meant, however, that the money-lender
is entitled to no share in any increased pro-
ductiveness of labour during the lifetime of
his loan, beyond the interest stated. He gets
his share of such increased productiveness
through the higher interest he will subse-
quently receive in re-loaning his capital.
If prices of commodities have declined
while wages have increased, as Mr. Wells
claims, it shows that the labourer, on the
whole, has received some share of the in-
creased production, since his wages will buy
more of commodities in general than for-
merly. Whether the employer of labour has
also received a share is more difficult to deter-
mine ; but it is absolutely certain, if prices
have fallen, that the money-lender, who is
106 HONEST MONEY.
entitled to no share at all, aside from inter-
est, has also received a share, and a very
large one in many cases ; since the money
returned to him in discharge of a debt will
purchase a much larger amount of commod-
ities in general than it would when it was
loaned ; and this share has evidently been
drawn from what should have gone to one
or both of the other classes, and they are
wronged to that extent.
While the labourer may, or may not, have
received the share to which he was entitled
during the last twenty years, it seems highly
probable, from Mr. Wells' statistics and argu-
ments, that it is the employer of labour
who as a rule is the borrower who has
been injured most by the fall of prices.
One of the great aims and endeavours of
mankind is to produce the largest amount of
commodities possible, with the least labour, -
or to lower the labour cost of commodities.
It is this lowered labour cost, which is " a
blessing and benefit to all mankind," not
GOLD-STANDARD ARGUMENTS. 107
lowered prices. The two are not the same,
nor have they any real connection. Lowered
labour cost depends solely on the improvement
in skill, methods, machinery, etc., which will
go on as well with prices constant on the
average, as with falling prices, in fact, even
better, and the product will then be dis-
tributed honestly; while with falling prices
the distribution is dishonest.
It is important to keep clearly in mind the
distinction between capital and money. That
Mr. Wells has not always done so, the fol-
lowing quotation will show :
" Nobody, furthermore, has ever yet risen
to explain the motive which has impelled the
sellers of merchandise all over the world,
during the last thirty years, to take lower
prices for their goods in the face of an unex-
ampled abundance of capital and low rate of
interest, except upon the issue of the struggle
between supply and demand."
Capital is accumulated wealth devoted to
the production of more wealth; money is
108
HONEST MONEY.
merely a medium for the exchange and trans-
fer of wealth : they are not synonymous
terms. An abundance of capital may exist
with a small amount of money (relative to
the demand) and consequent low prices, or
with a large amount of money and high
prices : they have no connection.
The rate of interest, also, has nothing to do
with the question. Interest is determined by
the amount of capital seeking investment in
loans, relative to the demand, and in a time
of relative contraction of the volume of
money, and consequent falling prices, will,
as a rule, be low, since there is less induce-
ment for men to borrow capital to engage in
business, and more men wishing to lend. The
risks of business are much increased at such
a time, and the profits much lessened, and as
the rate of interest is determined by the
profits of business in general, it will be low
also. Mr. Wells, indeed, has recognized this
fact elsewhere in his writings, but has evi-
dently forgotten it in the above quotation.
GOLD-STANDARD ARGUMENTS. 109
The accumulation of money in banks in
times of depression indicates not too much
money, but a general belief that its value is
rising, or a fear that it will rise ; testifying,
if to anything, to too little money, in fact.
Men do not hold a thing that brings no
income unless they expect to profit by its rise.
As to the main point of the above quota-
tion, certainly men accept lower prices for
merchandise because of the issue between sup-
ply and demand, but the supply of money is
as much involved in the calculation as the
supply of merchandise. Men accept lower
prices that is less gold for commgdities in
general, because gold has increased in value.
Mr. Wells further says :
" No one has ever named a single com-
modity that has notably declined in price
within the last thirty years, and satisfactorily
proved, or even attempted to prove, that its
decline was due to the appreciation of gold."
No one, of course, could prove by the de-
cline in price of a single commodity that
110 HONEST MONEY.
money or gold had appreciated ; but when a
writer admits, as Mr. Wells has done so
clearly, that prices in general have fallen,
no proof is needed ; the statements are but
different ways of saying the same thing.
That in order to establish the appreciation
of money it is necessary to show that all com-
modities have fallen in price, or that the price
experiences of different commodities had har-
monized in their decline, as Mr. Wells implies,
is manifestly absurd. Even if average prices
were constant, there would be continual fluc-
tuations of individual prices, some rising,
others falling, and these continue the same
with an increasing money value, so that some
prices might not alter at all, or might rise
even with a rising money value, but others
again would decline in a greater degree than
if the money value were constant. If the
average purchasing power of money is greater,
then its value is greater, whatever be the
cause.
So much space has been devoted to a criti-
GOLD-STANDARD ARGUMENTS. Ill
cism of this article because the opinions ex-
pressed in it seem to be fundamental and
dangerous errors. Moreover, they are given
added weight by the reputation and promi-
nence of the author, while they are more or
less representative of the arguments of other
defenders of the gold standard.
Either Mr. Wells is mistaken in his con-
ception of value, and of the standard by which
it is measured, or Bicardo, John Stuart Mill,
and all other authorities on Political Economy
are mistaken in supposing that the value of
a commodity is its general purchasing power.
CHAPTER VI.
FOREIGN COMMERCE.
IT is claimed by many writers that inter-
national trade is carried on upon a gold basis,
and that it is necessary, therefore, if a country
is to maintain and increase such trade, that it
should have its money based upon gold, since
its " balance of trade" must be paid in gold.
The idea of foreign trade involved in such
statements is a relic of the old "mercantile
theory " that the great object of any country
was to export as much as possible of its prod-
ucts and receive in return the largest possible
amount of gold and silver, to get gold, in
fact, at any hazard. This theory was buried,
a century ago, under the weight of Adam
Smith's arguments, and every economist since
112
FOREIGN COMMERCE. 113
then has helped to bury it deeper; but its
ghost still stalks and appears now and again
in the form of such statements as the above,
and in the common expressions " the balance
of trade is against the country," or " the
balance of trade is in favour of the country,"
meaning that gold is being exported or im-
ported, and implying that the one is an injury
or the other a benefit to the country.
From a mercantile point of view, there is
some justification for these expressions, and
for the satisfaction felt at a condition of
things requiring the import of gold. As be-
fore stated, the value of gold is inversely as
general prices in gold-standard countries, and
the import of gold means a lowering of its
value and a general rise of prices, which,
of course, is what merchants like to have hap-
pen; and the export of gold means a fall in
prices, which they dread.
Under a monetary system which maintained
prices constant, on the average, the export or
import of gold would be of no more impor-
114 HONEST MONEY.
tance than the export or import of corn or
silk.
From an economic standpoint the term bal-
ance of trade is a misnomer, and is mislead-
ing. Equally misleading and erroneous is
the idea that gold or silver is in any way
necessary to foreign commerce, or that in
consequence of a money being based on one
of these metals such trade will be in any
way enhanced.
International trade is an exchange of com-
modities ; not, to be sure, a direct barter, but
an indirect one. One country exports those
commodities which it can produce the cheap-
est, in exchange for those of other countries
that are either not produced at all in the first
country, or can be produced only at a greater
cost than by import. The immediate force
impelling to the export and import of com-
modities is, in all cases, a difference in their
values in the two countries. This is no less
true of gold than of other commodities, for
gold will never move from one country to an-
FOREIGN COMMERCE. 115
other except it be of lower value in the export-
ing than in the importing country, no matter
how much the one may be owing the other.
The expressions " balance of trade in favour
of," or " against a country/' means only that
gold is at that time of higher value in one
than in another country, by an amount above
the cost of shipment, and is being exported or
imported because there is a profit in so doing ;
but this furnishes no criterion whatever of
the prosperity of a country. It frequently
happens that gold moves for a considerable
time from one country to another because
of large production of gold in the exporting
country. That cannot be considered a bad
condition of business or unfortunate for the
exporting country, unless the commodities
received in exchange are useless, or are wasted.
At other times it frequently happens that a
country is importing gold, giving in exchange
not only other commodities, but promises to
pay back the value received, in the shape of
bonds and stocks running in debt, in fact.
116 HONEST MONEY.
This may be a good or a bad thing for the
country, as for an individual, according as the
value received is profitably used or not. It
certainly is no sure indication of real pros-
perity.
The operations of foreign trade create a
great number of claims and obligations on
the part of citizens of one country against,
as well as in favour of, the citizens of all
others. These claims consist of drafts, bills
of exchange, letters of credit, etc., and are
expressed in every kind of money that exists,
whether based on gold or silver, or simply
inconvertible paper. Through the medium of
foreign exchange banks these claims are offset
against each other and cancelled. Between
two countries having the same monetary
standard there exists what is called the par
of exchange ; that is, the ratio between the
weights of gold or silver in their respective
units. The actual rate of exchange that
is, the price which will be paid in one money
for claims expressed in another seldom con-
FOREIGN COMMERCE. 117
forms to this nominal par. The bills of ex-
change, etc., representing claims of the export-
ers of one country against the importers of
another may be regarded as a sort of commod-
ity, and subject to the law of supply and
demand. If one country, A., has more claims
against another, B., than B. has against A..
then the demand will be stronger for those
which are fewer, and the price will rise, and
vice versa.
The prices of exchange cannot vary from
the par of exchange between gold-standard
countries much more than the cost of ship-
ment of gold ; for if they do, it will become
profitable to export or import gold, and this
will create new claims balancing the others.
The variation of exchange rates within these
limits is quite sufficient, however, to cause the
actual exchange rate, and not the nominal
one, to be reckoned on by those engaged in
foreign trade.
There exists, and always has existed, an
actual exchange rate between the money units
118 HONEST MONEY.
of all countries, or between the claims ex-
pressed therein, no matter what the money
was based on ; although there cannot be a par
of exchange except between moneys based on
the same metal. These actual rates are con-
tinually varying, even between countries like
England and Australia, which not only use the
same standard, but a common unit, and there
is, therefore, no difference in the practical
working of exchange between countries hav-
ing the same standard and those having
different ones.
The inference to be drawn from these facts
and theories is, that it would make no differ-
ence in the foreign trade of any country if it
did not possess an ounce of gold or of silver,
or whether its money was based on gold or
was inconvertible paper ; if the country pro-
duces commodities that other countries want,
and wants some that other countries produce,
the commerce will continue.
If the money of either country is fluctuating
in value, relative to the other, to any great
FOREIGN COMMERCE. 119
extent, it may introduce some uncertainty
that will hamper and inconvenience trade,
though to a less extent than a variable money
would in its own country, as there are means
by which such fluctuations can be guarded
against ; but unless the changes are sudden
and violent, no inconvenience will be experi-
enced, as the actual exchange rates are more
or less always fluctuating.
In support of these statements, and as
showing that they are borne out by practical
experience, the following quotations are given
from Mr. Wells' " Recent Economic Changes,"
in reference to trade between a silver and a
gold standard country when the relative val-
ues of the two metals were changing quite
rapidly. He says, p. 239 :
"Mr. Lord, a director of the Manchester
(England) Chamber of Commerce, testified be-
fore the Commission on the Depression of
Trade, in 1886, that 'So far as India was
concerned, it is not necessary to run any risk
at all from the uncertainties of exchange.'
120 HONEST MONEY.
Mr. Blythell (representing the Bombay
Chamber of Commerce) testified before the
same commission, . . . ' There is no difficulty
in negotiating any transaction for shipping
goods to India and in securing exchange.' :
Mr. Wells says: "Thus from returns offi-
cially presented to the British Gold and Silver
Commission, 1886, it was established that
the trade of Great Britain with India since
1874 had relatively grown faster than with
any foreign country ' except the United States
and perhaps Holland.' : He also says, of
Mexican exchange, p. 241 : " The fluctuations
in the price of silver since 1873 Mexican
exchange having varied in New York in
recent years from 114 to 140 would seem,
necessarily, to have been a disturbing factor
of no little importance in the trade between
United States and Mexico ; but the official
statistics of the trade between the two coun-
tries since 1873 (notoriously undervalued) fail
to show that any serious interruption has
occurred.' 1
FOREIGN COMMERCE. 121
During this period, Mexico had a silver
standard, while the United States had incon-
vertible paper for nearly six years of it, and
a gold standard for the remaining period.
Mr. Wells further states :
" In forming any opinion in respect to this
problem, it is important to steadily keep in
mind the fact that international trade is trade
in commodities and not in money ; and that
the precious metals come in only for the set-
tlement of balances. . . . The trade between
England and India is an exchange of service
for service. Its character would not be
altered if India should adopt the gold stan-
dard to-morrow, or if she should, like Russia,
adopt an irredeemable paper currency, or, like
China, buy and sell by weight instead of tale.
. . . Unless all the postulates of political
economy are false unless we are entirely
mistaken in supposing that men in their
individual capacity, and hence in their aggre-
gate capacity as nations, are seeking the most
satisfaction with the least labour, we must
122 HONEST MONEY.
assume that India, England, and America pro-
duce and sell their goods to one another for
the most they can get in other goods, regard-
less of the kind of money that their neigh-
bours use or that they themselves use."
From the time of the Civil War until 1879,
this country, though nominally on a gold and
silver basis, was actually using a depreciated
paper money. No serious inconvenience was
experienced in our foreign trade during the
greater part of this time ; when the currency
was most fluctuating, it doubtless did disturb
all business, both foreign and domestic, but
this was due to its great and sudden changes,
and may be regarded as abnormal, and un-
likely under a proper system again to occur.
Walter Bagehot, in his work, " A Universal
Money," observes :
" If France and America had the same cur-
rencies as England, it would still happen,
as now, that bills on Paris or New York
would be at a discount or a premium. The
amount of money wishing to go eastward
FOREIGN COMMERCE. 123
I
across the Atlantic, and the amount wishing
to go westward, would then, as now, settle
how much was to be paid in London for bills
on New York, and how much was to be paid
in New York for bills on London."
It must be evident that if the people of one
country have incurred debts to the people of
another country expressed in foreign mone-
tary units, nothing but such foreign money
will satisfy the claim, and to procure it the
debtors must ship some commodity in ex-
change for it. What this commodity will be,
will depend on which is the cheapest which
one the debtor, everything considered, will
have to give the least of in exchange for
the necessary foreign money, it may be
claims against foreign merchants, or bankers,
in the shape of drafts or bills of exchange, or
it may be gold, if that is cheaper, or it may
be wheat, or cotton, or any other commodity,
but it will always be that which the debtor
can purchase cheapest. If it be gold, it will
be because the debtor can purchase enough
124 HONEST MONEY.
gold to exchange for the required amount of
foreign money for less of his own money
(including transportation and other charges)
than he can purchase a sufficient amount of
any other commodity, and not because the
foreign money is based on gold. In short, the
gold differs in no way from any other com-
modity in such transactions ; it is exchanged
for the foreign money, which alone can satisfy
the debt, precisely as any other commodity.
That both gold and silver may be a con-
venience at times in international trade is not
denied ; but they are not a necessity, and their
convenience for this purpose is in no way
enhanced by their coinage or by their use as
a domestic money.
CHAPTER VII.
MONEY IN THE UNITED STATES.
TURNING from the consideration of money
systems in general to the particular case pre-
sented in our own country, we find a most
curious system if, indeed, anything bearing
so little evidence of rational adaptation to its
purpose is entitled to that name.
The unit of the system is the gold dollar,
containing 25.8 grains of standard gold, nine-
tenths fine, coined in five, ten, and twenty
dollar pieces. There is also a silver dollar,
containing 41 2 J grains of standard silver,
nine-tenths fine, the ratio between the two
being 15.988 grains of silver to one of gold.
The gold is coined free, in any amount pre-
sented. The silver coinage has been restricted
125
126 HONEST MONEY.
for many years, and is now entirely stopped.
The silver dollar, however, circulates at par
with gold, though its bullion value is only
about fifty cents measured in gold, which is
the real basis of the system.
In addition to the coin, and circulating on
a par with it, are a number and variety of
issues of paper money.
(1) United States notes (or greenbacks),
secured only by the credit of the government,
except that there is held in the Treasury
about 30 per cent, of the amount of these
notes in gold as a redemption fund.
(2) National bank-notes, issued nomi-
nally by the various national banks of the
country, but practically issued by the govern-
ment ; since they are secured by a deposit of
government bonds, are guaranteed by the
government, and rest as completely on the
credit of the government as the greenbacks
do, though in a different way.
(3) Silver certificates, secured by a de-
posit of silver bullion.
MONEY IN THE UNITED STATES. 127
(4) Gold certificates, secured by a like
deposit of gold.
(5) Treasury notes, secured by deposits
of silver.
(6) Currency certificates.
All of these kinds of paper money, as well
as the silver coin, circulate on a par with
gold ; their utilities being equal, and the
demand for money being an indiscriminate
one, their values must be equal. As a domes-
tic money, gold cannot have a higher value
than the issues of paper money; though it
may, however, have a greater value as a com-
modity for foreign shipment. It is not the
fact that these other forms of money may be
exchanged directly or indirectly for gold at
the United States Treasury that makes their
values equal to gold value, but the fact that
their utilities are equal. They would remain
of equal value with gold if the Treasury did
not exchange gold for them, so long as any
gold remained in circulation as money. A
gold reserve, however, is necessary as a pre-
128 HONEST MONET.
caution in a gold-standard system, but only to
the extent of the probable demand for gold
for export.
The system as a whole is a ridiculous one,
and nearly all its features are wasteful and
uneconomic.
Gold coin, as a circulating medium, is not
as good as paper ; it has a high subjective
value, and such use of it is wasteful ; it should
be kept as a reserve for export purposes.
The gold certificates are better, but are also
wasteful; since only a sufficient reserve is
needed to meet possible demands for export,
and this would be far less than dollar for
dollar.
The silver coin is open to the same objec-
tion as the gold coin as a circulating medium,
and the silver certificates to the same objec-
tion as the gold certificates, and to the further
objection that the silver deposited to secure
them is of no use whatever, even as a reserve,
for no one would demand silver bullion of the
government in exchange for paper money at
MONEY IN THE UNITED STATES. 129
the present coinage value, when they could
purchase nearly twice as much in the open
market for the same money. Unless, then,
our money should fall in value some 50
per cent., not an ounce of silver will ever be
called for at the Treasury in exchange for
the paper issues based thereon; and the sil-
ver deposits are merely a clumsy and costly
method of limiting the volume of the paper
money.
The greenbacks, or United States notes,
are economical, and if they were variable in
volume and under proper control would be a
good money.
The national bank-notes are wrong in
principle, in allowing private corporations
to make a profit from the issuance of paper
money. This objection is of no practical
importance, at present, as the restrictions
and high bond prices have taken away prac-
tically all the profit to the banks on the
issues, but in so doing have also taken away
about the only merit such notes ever had,
130 HONEST MONEY.
that of elasticity of volume to some extent.
This was a most doubtful merit at best, as
the issues were governed by considerations of
private profit and not by any desire to make
money of stable value. Whatever may have
been the merits of the national banking
system in the past, the war necessities of the
government which gave birth to it, have
long since passed away. It can be viewed
now only in the light of its present useful-
ness, and as an issuer of money it is of no
use whatever.
Paper money received by deposit of bonds
instead of bullion is economical arid correct
in principle, if controlled in the interests of
the public, and not left at the mercy of men
whose private interests may be opposed to
the public welfare. No such control of the
volume of the money is attempted in the case
of the national bank-notes, and they are no
more secure than are greenbacks, since the
ultimate foundation of both is the national
credit in one form or another.
MONEY IN THE UNITED STATES. 131
Of all our different kinds of money, the
only ones susceptible of change in volume
to meet the varying demands of commerce
are, under existing laws, the gold coin and
certificates. These can be changed only by
the import or export of gold, or by the prod-
uct of the mines over and above the amount
needed for the arts and sciences, and which
must be divided with other gold-standard
countries.
The national bank-notes are theoretically
elastic in volume, but actually are not so, to
any appreciable extent. They require for
their issue the purchase and deposit with
the United States Treasurer of government
bonds, now at a large premium, are
subject to other charges and restrictions, and
are not, as a rule, profitable enough to the
banks to cause any increase of the issues
above that required by law, except in urgent
necessity, and that to a very limited extent.
As a result of these conditions, the country
witnessed, during the recent panic of 1893,
132 HONEST MONEY.
a resort to every kind of device known to
banking and permissible by law, to increase
the volume of the currency and meet the
enhanced demand for money caused by the
utter failure of credit. Certified checks, cer-
tificates of deposit, clearing-house certificates,
and other devices were resorted to, and even
then thousands of solvent institutions over
the country were obliged to close their doors,
and the industry of the whole country was
paralyzed.
The events are of too recent occurrence to
need rehearsal here. It is a sad commentary
on the wisdom of our legislators that, not-
withstanding all the tinkering and patching
that our financial system has undergone, and
the voluminous debates in and out of Congress
for years past, the volume of our money has
been so far from keeping pace with the
demands of commerce that prices have been
falling for a quarter of a century, culminat-
ing last year a repetition, unhappily, of
previous experience in a collapse of the
MONEY IN THE UNITED STATES. 133
overstrained credit that was vainly trying
to do the work of money, and bringing ruin
and disaster to thousands.
The condition of our monetary laws to-day
is such that, except by the slow increment
of gold production, which must be shared
by all the world, we possess no means of
meeting either the increasing demand for
money that expanding population and com-
merce bring, or the sudden demand that a
failure of credit may bring at any time. This,
obviously, is a blunder on the part of our
law-makters that amounts to a crime.
It is not surprising that under such condi-
tions the industries of the country are crip-
pled and that thousands of men should seek
work in vain. Still less surprising is it that
in the face of a continually increasing value
of money, or decreasing prices of nearly every-
thing else, prudent men choose, as far as possi-
ble, to turn their capital into money, lock it
up in safe deposit vaults, or let it lie idle in
banks, rather than take the great risk that
134 HONEST MONEY.
any active use of capital under such circum-
stances carries with it. When money is
increasing in purchasing power from five
to seven, and even a higher per cent, per
annum, as has been shown to be the case
many times in the past, it means that the
man who locks his money up in a vault
gets that percentage of return for letting it
lie idle ; or that the man who loans it, even
at a low rate of interest, if a loan with
safe security can be found at such a juncture,
makes the five to seven per cent, resulting
from the increased value, in addition .to what
he gets as interest.
Men cannot be blamed for declining to
engage in productive enterprises under such
conditions, nor for hoarding money instead
of using it ; the blame lies on the system
that not only permits but compels such
action.
There is evidently no inducement for men
with money to invest it in any productive
business with the certainty, under existing
MONEY IN THE UNITED STATES. 135
conditions, that the record of the past will
be that also of the future, and that if a re-
turn of confidence again expands credit and
stimulates business to a new activity, it is
sure to be followed, at no distant day, by
another collapse.
It must be conceded, with these considera-
tions in mind, that the imperative need of
this country is for a money that shall be at
once more honest, more simple, and more
elastic, and, at the same time, adaptable to
the varying demands of commerce.
Any change in a money system must, of
necessity, cause some disturbance of business,
and such change should be so devised as to
cause the least possible disturbance, and do
as little injury to vested interests and exist-
ing obligations as possible.
The system chosen should, moreover, be
adapted not only to the needs of the present,
but also to the possible requirements of the
future, so that no change of system will after-
wards be called for to meet further changes in
136 HONEST MONEY.
demand, and cause again a disturbance of
commerce. In short, it should be a system
logical, economical, scientific, and permanent,
not a makeshift, to be changed in the
next Congress by the addition of another
makeshift, in the manner in which our pres-
ent crazy patchwork of money has been
created and maintained.
CHAPTER VIII.
SOME PROPOSED CHANGES IN OUR MONEY
SYSTEM.
OF the many plans that have been proposed
to correct the evils of our existing money
system, it is not necessary to notice here more
than two or three. Most of the others are
more or less temporary expedients which, even
if meritorious, fall so far short of an adequate
or permanent solution of the problem as to
merit little attention.
The change which has been most urgently
advocated is a return to the free coinage of
silver.
It is not proposed to enter into any extended
discussion of the merits or demerits of this
proposition. Much has been written on the
subject already, most of it, unfortunately,
137
138 HONEST MONEY.
from a partisan standpoint, and ignoring all
facts and principles, however well established,
which did not agree with the views advocated.
This, it may be said, is equally true of both
sides to the controversy. It seems desirable,
therefore, to point out how the principles
we have already investigated apply to the
question.
Those who advocate free coinage of silver
claim that the value of gold has increased
since free silver coinage was stopped, while
the value of silver has remained more nearly
constant. This claim, as we have seen, is
correct. They claim not to desire to sub-
stitute silver for gold in the coinage, but to
use both together at the ratio of 15.988 to 1,
under a bi-metallic system, increasing the
volume of money, and thereby raising prices
to a higher level.
Their opponents say that free silver coinage
will drive gold out of the country and the
value of our standard will at once fall to the
present bullion value of silver (about 50 to 60
PROPOSED CHANGES IN MONEY SYSTEM. 139
cents, measured in gold), and that bi-metallism
is only practicable by agreement between the
leading nations.
That free coinage of silver would result in
driving gold from the country has been
largely denied by the advocates of that
measure. In this denial they make a great
mistake, not only because the statement is
strictly true, as theory and experience in
the past have alike shown, but also because
it would accomplish what they are aiming at,
and is the only way in which it can be accom-
plished through silver coinage. The increase
in the volume of money here would raise prices,
and the flow of gold to other countries would J
raise their prices also, and thus a general rise
of prices and a lowering of the value of gold,
would result.
The gold-standard advocates have also
made an error in supposing that free silver
coinage would result in the immediate fall of
our standard to the present bullion value of
the silver dollar.
140 HONEST MONEY.
It would be rather difficult to trace the
immediate effects of such a measure, as sev-
eral conflicting forces would be brought into
play, the relative strengths of which could not
be foretold. It seems probable, however, that
the first effect would be a large rise in the
price of silver bullion, and a hoarding of gold,
followed by its export in exchange for silver.
For a time this would cause a fall in prices of
other commodities, followed by a rise, as the
new coinage began to fill the place of the gold
hoarded and exported. However this might
be, it can hardly be doubted that the final
result would be a rise in prices of commod-
ities including silver as measured in gold,
or a fall in the value of gold all over the
world as measured by commodities. Our
money would probably remain at a slight
depreciation below our gold standard, while
both together would gradually lower. This
condition would be made manifest by grad-
ually increasing prices, and would continue
either until all the available gold had been
PROPOSED CHANGES IN MONEY SYSTEM. 141
exported, or until the rising value of silver
met the falling value of gold at the coinage
ratio of 15.98 to 1. Whichever of these
results took place would depend on the rela-
tive amounts of gold available for export and
of silver for import, and could hardly be fore-
told. It seems more than likely, however, that
the gold would all be exported. In this case,
the country would have the silver standard,
and the value of the dollar would be some-
what lower than the value of a gold dollar
then, and considerably lower than the value
of a gold dollar now, but also considerably
higher than the bullion value of the silver
dollar is now.
If the two dollars reached a parity at their
coinage ratio before all the gold was ex-
ported, the country would have not only a
bi-metallic standard, but would practically
force such a standard on the rest of the
world, as long at least as the gold supply
held out. If foreign nations returned also to
the free coinage of silver, they would either
142 HONEST MONEY.
have to change their ratio to agree with ours,
or, if they kept their present ratio of 15s to
1, the silver would gradually leave us in ex-
change for their gold.
The fear of a sudden fall in the value of
the dollar, as a result of free silver coinage,
is not justified. The value of the dollar
would fall gradually as the volume of the
money increased, as would be made mani-
fest by gradually rising prices, except that
this fall would be more or less counteracted
at the start by a hoarding of gold, which
would decrease the supply of money, and
perhaps by a disturbance of credit, which
would increase the demand for it. The first
effects might be, therefore, an increase in-
stead of a decrease of money value.
It would probably not make so very much
difference whether bi-metallism or the single
silver standard was the final result. The
value of the dollar would not be greatly
different in the two cases. Before we reached
a silver basis we would have exported some
PROPOSED CHANGES IN MONEY SYSTEM. 143
five or six hundred millions of gold, and
bought its equivalent in silver, securities, and
commodities, and the result would necessa-
rily be a great advance in the value of sil-
ver, and a corresponding fall in the value
of gold, the reverse, in fact, of what
happened when Germany and other nations
changed from a silver to a gold basis.
Whether, therefore, this country were able
or not to restore the parity of the two
metals at the present coinage ratio, the de-
parture from such parity would not be
nearly so great as it now is. Provided that
the volume of the uncovered paper money
remained the same as now, and that, when
the change was finally accomplished, credit
were used to the same extent as before, the
B
value of the dollar would be somewhere
between the present bullion values of the
gold and silver dollars, and probably nearly
as high if the result were the single silver
standard as it would be if bi-metallism were
accomplished.
144 HONEST MONEY.
The merits and demerits of the plan may
be summed up as follows :
The change would necessarily cause a great
disturbance of business, which might result, at
first, in a lowering of prices, but would event-
ually result in a gradual but considerable in-
crease of general prices, and a stimulation of
industry.
Debtors would be benefited considerably,
and creditors wronged considerably, especially
in short-time obligations ; though the long-
time ones those that had run for a number
of years would not be affected so much.
Once established, the money value would
probably be less variable than gold has been,
and rather more variable than silver has been
in the past, but this could not be said with cer-
tainty, as the money value would continue to
be the result of a variety of forces, of which
no one could predict or control the strength.
The inconvenience of so bulky a metal in
large amounts would almost necessitate its de-
posit in vaults and the issue of paper money
PROPOSED CHANGES IN MONEY SYSTEM. 145
in its place for actual circulation. If this
paper were issued only to the amount of the
silver deposited, it would be a most uneco-
nomical system, since the greater part of the
silver might evidently just as well be in the
ground from which it was dug, so far as any
real use was concerned. If paper were
issued in excess of the silver deposited, it
would not make a market for very much more
silver than we now use, and the value of sil-
ver would be raised but little.
The value of the money would therefore
depend largely on the use that was made of
paper in connection with it. Without some
control of the volume of the money besides
the control the supply of silver would give, its
value would continue to fluctuate at all times,
and greatly so in times of panic, as it always
has done. With proper control the silver is
wholly unnecessary, as its only use is to limit
the volume of the money, and this can be
done far more cheaply and efficiently in other
ways.
146 HONEST MONEY.
Little need be said of the "Greenback" or
fiat money proposals, so prominent some years
ago, though they are seldom advocated now.
Their only merit was a dim perception of the
fact that gold and silver are not necessary to
a money system. Their errors were that they
failed to provide any standard by which money
value could be tested, or any control had of
its volume. They also failed to recognize the
fact that money value is wholly dependent
on money volume.
Various plans have been proposed for
changing our money system by increasing
the issues of bank-notes. One of these plans
is to repeal the present prohibitory tax on
State bank-notes, which would, of course,
result in the issue of such notes to any extent
that was profitable.
Several other plans propose to increase the
issue of national bank-notes by removing
some of the present restrictions, and allowing
the banks to pledge other securities than
United States bonds as a guarantee of their
PROPOSED CHANGES IN MONEY SYSTEM. 147
circulation, or by allowing their capital to
serve, in part, as such guarantee.
All of these plans are merely makeshifts,
and merit little attention. Considered, how-
ever, only as makeshifts, and with reference
solely to the claims they advance, they are of
no permanent benefit to the public. They only
allow the banks to make a profit that should
go to the community. It is claimed that the
money volume will be made more elastic by
these issues. This claim does not appear to
be justified by an analysis of most of them,
and, so far as it holds good in any of
them, it is a most dangerous feature. If the
issues are made profitable to the banks,
and otherwise there would, of course, be no
issues, as they are not compulsory, then
the banks would undoubtedly increase them
to the full limit allowed by law at any time.
If they were limited so as to be profitable
only when interest rates were high, then,
when times were prosperous, prices rising, and
profits large, the interest rate would be high,
148 HONEST MONEY.
and the increased issues would enhance the
"boom." When, however, the inevitable
reaction came, and prices began to fall, and
credit to be withdrawn, the time, most of
all, when more money would be needed, the
banks would not only be helpless to increase
their issues, but would very likely reduce them,
because of the increased risk at such times,
and the fact that, in times of depression and
declining prices, interest rates are apt to be
low also.
Elasticity of volume is a most necessary
feature of a money system, when it is rigidly
controlled, to make money value constant ; but
it would be a most dangerous feature when
the control was governed by the desire only
to make the most profit. It would simply
result in a greater fluctuation of money value
than there is now.
We have, so far, examined these various
plans for amending our faulty money system
rather in regard to the truth of their pretences
than in regard to the requirements of an
PROPOSED CHANGES IN MONEY SYSTEM. 149
honest money. In this latter respect, all the
plans ignore the necessity for an invariable
standard of value, and provide no method for
controlling the volume of money, and adjust-
ing it to the demand, as might be done, to
some extent, even with the gold standard.
The general decline of prices could not be pre-
vented, though some of the fluctuations might.
The fact must be faced, that any attempt
to increase the volume of money in this coun-
try, and thereby raise our prices above those
of other countries, or to maintain our prices
in gold constant, while those of other countries
are declining, can result only in the export of
gold. This might not happen at once, for it
takes time for Gresham's law to operate, but
it would be inevitable. It would probably be
delayed somewhat by foreign speculation in
our securities, always a powerful factor in
determining the value of our money, but
it would come ; and the resulting depression
would be all the greater for the delay and
the height of the prosperity that preceded it.
150 HONEST MONEY.
So long as our money is based on a metal
that forms a part of the money of other coun-
tries, under a free coinage system, so long
will the value of our money fluctuate under
the influence of foreign monetary legislation,
wars, panics, and a hundred forces beyond
our control.
Only by divorcing our money from that of
other countries can we control it, and only by
controlling it can it be made honest money.
CHAPTER IX.
A NEW MONETARY SYSTEM.
IN the development of commerce from
simple barter between savages up to its pres-
ent complicated form and enormous volume,
an evolution is apparent, similar in character
to that which has taken place in the organic
world. In both the change has been from
the simple and homogeneous to the complex
and heterogeneous. In both it has been a
differentiation of the functions of the several
parts, accompanied by an increased sensitive-
ness of the whole.
The primitive form of commerce, direct
barter, may be compared to one of the low-
est forms of animal life, in which all parts
are alike mouth and stomach, and which if
151
152 HONEST MONEY.
cut into pieces, will exist, severally, as a com-
plete animal ; while modern commerce, with
its various parts, each with a separate func-
tion, and its highly sensitive organism, is more
like a human being, in which each part is
adapted to the work it has to perform and
is dependent on all the others, so that the
failure of any one to do its work cripples all
the rest.
Just as the cutting or maiming of a low
form of animal life is of little damage to it,
while a far less injury, relatively, would kill or
seriously maim a man, so an injury to com-
merce, that in a primitive form would amount
to little, in our modern highly developed sys-
tem would cripple it greatly. Money is one
of the most important parts of our industrial
system, the very life-blood, in fact, and
if, for any reason, it fails to perform its func-
tions fully and completely, the consequences
are far more disastrous than they would have
been under the more primitive systems of
the past.
A NEW MONETARY SYSTEM. 153
Along with the evolution of commerce in
general has gone an evolution of money and
the mechanism of exchange. As the volume
of traffic grew larger, the use of the bulkier
commodities as money was gradually aban-
doned for the more valuable metals. In time,
even these became too bulky and inconvenient
for use as a medium of exchange, and credit,
in its various forms, now does the work of
money, as to this function, to a far greater
extent than money itself does, and even the
money itself is mostly a paper money, a
sort of certified credit.
As previously stated, about 95 per cent of
the bank deposits are in forms of credit, and
of the actual money deposits only about one-
tenth is gold, the balance being paper money
and silver ; so that, on the strength of these
estimates, only .6 per cent of the exchanges
of commodities are effected through the direct
use of gold.
This evolution of money, however, has been
almost wholly confined to the one function, a
154 HONEST MONEY.
medium of exchange ; there has been no ad-
vance for centuries in regard to the other
function, a measure of value. Men have con-
tinued to cling to the fiction that gold was a
standard of value, and that, so long as their
monetary system was based on that metal,
their unit was of invariable value. We have
seen how little ground there is for this claim ;
that a gold basis for our money is not neces-
sary to our foreign commerce ; and how
small a part gold really plays in domestic
commerce as a medium of exchange. Is it
not about time, then, to abandon the fiction
that gold is either a standard of value or a
medium of exchange, in any proper sense
of the terms, and to take a forward step in
the evolution of money by adopting a more
scientific standard of value, and making
the money, as a measure of value, conform
thereto ?
Professor Jevons, in " Money and the Mech-
anism of Exchange," in the chapter on " A
Tabular Standard of Value," inquires whether
A NEW MONETARY SYSTEM. 155
it is not possible to have a standard based
on a large number of commodities, a " mul-
tiple legal tender," as he terms it, and con-
cludes that the plan would resolve itself into
those severally proposed by Joseph Lowe in
1822, and, independently, by G. Poulett Scrope
in 1833, and by G. R. Porter in 1838. These
plans were practically alike. Recognizing the
fluctuations of money value, and the injury
done especially to long-time debts thereby,
they proposed that tables be prepared showing
the variations from year to year of the prices
of the principal commodities, taking into
account, also, the amounts sold. These tables
were to be used for reference, to ascertain in
what degree a money contract must be varied
so as to make the purchasing power of the
money returned equal to that loaned. The
plans seem to have been only suggestions, and
the details not worked out. Professor Jevons
speaks favourably of them, as perfectly sound
in principle, and the difficulties in the way as
not considerable. He suggests a method by
156 HONEST MONEY.
which the average prices of the commodities
could be computed, and closes with the state-
ment : " Such a standard would add a wholly
new degree of stability to social relations, se-
curing the fixed incomes of individuals and
public institutions from the depreciation which
they have often suffered. Speculation, too,
based upon the frequent oscillations of prices
which take place in the present state of com-
merce, would be to a certain extent discouraged.
The calculations of merchants would be less
frequently frustrated by causes beyond their
own control, and many bankruptcies would be
prevented. Periodical collapses of credit would
no doubt recur from time to time, but the
intensity of the crisis would be mitigated,
because, as prices fell, the liabilities of debtors
would decrease approximately in the same
ratio."
Prof. F. A. Walker, referring to these
schemes, and to similar ones proposed by Count
Soden and by Professor Roscher in Germany,
criticises them as too cumbersome for general
A NEW MONETARY SYSTEM. 157
use, but thinks they might be advantageously
employed for long-time contracts. The criti-
cism is evidently just ; not only are the plans
too cumbersome, but they only partially accom-
plish what is needed. They contain, however,
the germ of a plan which it is believed would
be both more effective and less open to the
criticism mentioned. Long and short time
contracts, and cash transactions, are too inti-
mately connected to make it possible in prac-
tice to use different and varying standards for
each.
Since the values of all commodities consti-
tute the only true standard of value, as close
an approximation to this standard as possible
should be adopted as our standard of value.
Since the value of the circulating medium
the money depends on supply and demand,
the supply should be so controlled that the
value of the money would always correspond
with that of the standard adopted, and since
paper money is the cheapest, the most con-
venient, and the only money entirely free
158 HONEST MONEY.
from outside influences affecting its volume
and value, our currency should be a paper
money.
The following is given as the outline of
a plan embodying these features and re-
quirements.
The Standard of Value.
Let a commission be appointed by Con-
gress to select a sufficient number of com-
modities, say, one hundred, to be used as a
standard of value.
This selection should comprise the com-
modities most largely bought and sold and
most independent of each other in their
values ; preference should be given to those
which are products of this country, but
foreign products should also be included,
and to those which are reliable in quality
and of which the prices are regularly quoted
such, for instance, as wheat, corn, oats,
rye, barley, cotton, wool, tobacco, rice, gold,
silver, lead, copper, tin, iron, steel, cotton
A NEW MONETARY SYSTEM. 159
and woollen cloths, leather, hides, lumber of
various kinds, sugar, beef, pork, mutton, etc.
The aim should be, while not including
all commodities, which would of course be
impossible, to include a sufficient number
and of such varied kinds as to fairly repre-
sent all. Less than a hundred might be
sufficient, or it might be better to take more
than that number.
With the aid of statisticians, the average
price of each of the commodities selected,
in their principal markets for a few years
past, should be ascertained and tabulated.
The commodities, of course, should be of
specified grade and quality, and in a spec-
ified market, but not necessarily the same
market for all.
The length of time over which the
average of prices should extend would be
determined as closely as possible by the
average length of time that existing in-
debtedness had run. (The reason for this
will be explained later.) In addition to
160 HONEST MONEY.
the average prices of each commodity, the
approximate amount or value annually con-
sumed in this country, should be ascertained.
From these data, a table should be pre-
pared showing the amount one dollar would
have purchased, on the average, of each of
the commodities for the time determined,
and from this a final table should be made
taking such multiples of the amounts found
in the previous table as should represent their
proportionate consumption, in other words,
their relative importance in trade.
For example, suppose the time selected were
five years, as representing twice the average
time existing debts had run ; that during
that time one dollar would have bought, on
the average, 1.25 bushels of wheat, or 3 bush-
els of corn, or 100 pounds of pig iron, or 10
pounds of cotton, all of specified grade in spec-
ified markets ; that, further, the importance
of each of these commodities in the trade of
this country was in the approximate pro-
portions of 5, 3, 2, and 1, respectively.
A NEW MONETARY SYSTEM. 161
Then the final table would show:
5x 1.25= 6.25 bushels of wheat = 95.00
3x3 =9 bushels of corn = 3.00
2 x 100 = 200 Ibs. of pig iron = 2.00
1 X 10 =10 Ibs. of cotton = 1.00
Total, $ 11.00
Considering these four commodities only,
the dollar, as the unit and standard of value
of our system, would be defined by law as
one-eleventh of the sum of the values of 6.25
bushels of wheat, 9 bushels of corn, 200 pounds
of pig iron, and 10 pounds of cotton. This
illustrates the method of arriving at, and the
definition of, the standard. Extended to all
the commodities selected, the definition would
be the same with the substitution of the proper
figures.
This would evidently provide a standard
that would closely represent the average pur-
chasing power of one dollar for the time se-
lected. As to the length of time over which
this average should extend, if there were no
such thing as existing debts, it would clearly
162 HONEST MONEY.
be qf little importance what the value of the
unit selected was, just as it would be of no
importance now whether the foot or the pound
had been originally fixed at greater or less
than their present length and weight ; but
because of the vast amount of existing in-
debtedness, the value of the unit that is to
be made permanent should be most carefully
fixed at the value it had when such indebted-
ness was created, so as to do as little violence
as possible to outstanding obligations. The
fact that in the past the debtors have been
wronged to the advantage of creditors, by
an increasing value of money, furnishes no
excuse for a reversal of this injustice and
a wronging of creditors by permanently fix-
ing the value of the dollar at what it was
twenty or thirty years ago. The debtors and
creditors of to-day are not the same indi-
viduals who stood in those relations at any
time in the past, and two wrongs do not
make a right.
The object should be, therefore, to deter-
A NEW MONETARY SYSTEM. 163
mine as closely as possible how many years,
on the average, existing debts have run, and
take twice that period for the total length
of time over which our prices should be deter-
mined. The average of the prices would then
correspond with what it was when average
debts were incurred.
This would doubtless work a slight injus-
tice to those whose debts were of longer
standing, though a less injustice than they
are subject to now, and would be a slight
injustice to the creditors of more recent
date ; but as some time would be occupied
in getting the system to work, so that
the actual value of the money would corre-
spond with the standard, the injustice would
be more or less distributed, and would at
most be slight. It would be substituting
only a gradual rise in prices for the decline
that has been going on, until prices were back
to the level of perhaps two or three years
before, and then fixing the level at that
point.
164 HONEST MONEY.
The Medium of Exchange.
After the statistical work outlined above
had been completed, Congress should repeal
the present monetary laws, substituting for
the definition of the " dollar " the new defini-
tion agreed upon. It should then provide a
currency or money to take the place of that
now used. This currency should be a paper
money similar to our " greenbacks. " It
should be a legal tender for all debts public
and private (except, of course, such as by their
terms are payable in gold). In fact, the only
difference between such notes and existing
" promises to pay " of the government would
be that the new notes, as is evident from the
new definition of the dollar, would be promises
to pay a definite value, and not a definite quan-
tity of one commodity of uncertain value.
The notes could be made redeemable in any
commodity at its current market price, and
should contain a pledge, on the faith of the
government, that the amount of the currency
A NEW MONETARY SYSTEM. 165
in circulation would be at all times so con-
trolled by the government that its actual pur-
chasing power would conform to the standard
on which it was based.
To carry out this pledge, it would be nec-
essary to have a small corps of statisticians
who would receive and tabulate the current
market prices for each day; and who would
calculate therefrom the aggregate prices of
the specified quantities of all the commod-
ities constituting the standard, in similar
form to the final table before mentioned, and
of which an example has been given. If
this aggregate for any day were more or less
than the total of the standard table, it would
show that prices in general had risen or fallen,
and some money should be withdrawn from
circulation, or more issued until the daily
total corresponded with the standard total.
Doubtless several plans might be proposed
for putting such a money into circulation and
controlling its volume. The following seems
to commend itself by its simplicity and effec-
166 HONEST MONEY.
tiveness of control, for at least a part, if not
all, of the issues, viz. : The money to be loaned
by the government on approved securities, such
as their own bonds ; other bonds of states,
counties, cities, railroads, etc. ; warehouse re-
ceipts, gold and silver deposits, etc. First-class
commercial paper, when guaranteed by solvent
banks, might also be taken, especially in case
of threatened panic. In short, such securities
as would be considered the safest for banks
and trust companies to loan upon, all under
such proper restrictions and safeguards as
would insure their safety as collateral. The
rate of interest charged for such loans to be
a variable one, decreasing as prices tended to
fall, and increasing as they tended to rise,
and without other restriction. This would
absolutely control the volume of money,
within narrow limits, since more would be
borrowed at a lower, and less at a higher rate,
of interest, yet the control would be elastic.
While the loans should be for short time,
they could be renewed at pleasure, and as
A NEW MONETARY SYSTEM. 167
often as desired, at the current rate of inter-
est, the security remaining good.
Such a plan would not interfere with
general banking business to any considerable
extent. In order to prevent monopoly, the
loans should be open to all on equal terms,
and the list of approved securities acceptable
as collateral should be made as wide as pos-
sible, consistent with safety. It would prob-
ably be found by experience, however, that
the principal borrowers direct from the gov-
ernment would be the banks, who would
re-loan the money (at a sufficiently higher
rate to pay them for their trouble) to their
customers, on local securities, commercial
paper, etc., as they now do.
In fact, the present system of national
banks could be made, with few changes in
the regulations governing them, a most val-
uable adjunct to the plan as a distributing
agency, and the plan is one that it would
seem ought to meet with approval. They
would, it is true, lose their present note cir-
168 HONEST MONEY.
culation, but that, under existing laws and
conditions, is of little or no profit to them.
They would gain by its being unnecessary for
them to keep so large a reserve of cash on
hand as they are often obliged to do now ;
for not only would the whole financial sys-
tem be more stable than now, but they
might safely be allowed to carry a part
of the present 15 to 25 per cent, reserve,
required by law, in such securities as they
could at all times use as collateral with
the government. They would gain even
more by the security such a system presents
against panics and senseless runs, which so
often compel solvent banks to close their
doors. In short, the government would act
toward the banks, not as a competitor, but
rather in the relation that the New York
clearing-house has several times acted toward
its members in times of panic, by the issue
of clearing-house certificates, a quasi-money
that helped them in time of need. The gov-
ernment would not be subject to the limita-
A NEW MONETARY SYSTEM. 169
tions of the clearing-house, however. The
money it loaned would be, unlike clearing-
house certificates, a legal tender everywhere ;
and the protection would extend to all the
banks of the country. The government would
act toward the banks in somewhat the same
way as they act toward individuals, or as
the Bank of England acts towards the other
English banks, as a sort of reserve agent. In
this case, however, the resources as to money
would be unlimited. In the manner of regu-
lating the volume of money, also, this plan
would resemble that of the Bank of England,
since that institution attempts in a feeble
way, and prompted doubtless by self-interest,
to regulate the volume of money, to some
extent, by raising the discount rate when the
volume is decreasing, as evidenced by exports
of gold, and lowering the rate when gold is
being imported.
If it were impossible or inexpedient to loan
in the above manner all the money the coun-
try required, a sufficient amount could be so
170 HONEST MONEY.
loaned as to give an absolute control of the
volume, and to regulate its value at all times,
and the balance could be issued in exchange
for the present greenbacks, and for interest-
bearing bonds of the government, thus con-
verting a part of the interest-bearing debt
into a permanent non-interest-bearing one.
It is evident that the control of such a sys-
tem should rest with the government, and
not be left to any banking institution ; for
a bank would be more influenced by con-
siderations of profit than of proper control in
the interests of all. The interest received by
the government would be a minor considera-
tion, the control of the volume being the
main object, and the rate of interest a means
merely to that end. The people, besides,
would have at all times a greater confidence
in notes issued directly by the government
than they could have in notes issued by any
bank, however strong.
The department of the government to be
charged with this issuing function should, of
A NEW MONETARY SYSTEM. 171
course, be entirely distinct and separate from
the other departments. Its sole business
should be the maintenance of an honest
money. It should have no connection with
the general expenditures of the government,
further than to pay into the Treasury such
profits, in the way of interest, as might be
received. The government expenses should
be met, as they now are, by the receipts from
taxes and duties, or, if these were insufficient
at any time, by borrowing money on its bonds.
Under no circumstances should money from
the issuing department ever be taken for the
expenses of government, except in the same
way that banks or individuals might receive
it, and never then to an extent that would
raise average prices.
The legal tender provision of the notes
would be necessary only as specifying the
medium in which payment of debts should
be made, to prevent misunderstanding, and
for the protection of debtor and creditor alike.
The new dollar being a quantity of value, and
172 HONEST MONEY.
not of a specified commodity, a loan might
be returned in any commodity of that value
but for some such provision.
The provision could in no case wrong a
creditor, for what he would receive in pay-
ment of the debt would be a positive guaran-
tee to deliver him the value specified in any
commodity he chose. Making the money
redeemable in any of the commodities on
which it is based would be only a form, and
might be omitted ; it is suggested merely as
obviating any objections to an irredeemable
money. Of course the government would
never be called upon to so redeem money,
since the holder of it could exchange it for
the commodity wanted in the open market to
equal advantage. No reserve of commodities
of any kind need be kept, therefore, for re-
demption purposes. One great difference
between this plan and existing systems will,
of course, be seen at once : the present system
promises a definite amount of gold, and must,
therefore, keep a gold reserve ; but as no one
A NEW MONETARY SYSTEM. 173
really wants the gold, except to exchange for
commodities, this plan proposes to do away
with the necessity for a gold reserve by guar-
anteeing that the money can be directly ex-
changed for such commodities at the current
market price, which is all that can be done
with the gold, and that the average pur-
chasing power of such money shall not vary
as gold does.
It must not be supposed that this plan con-
templates any control of individual prices.
Such will be free to fluctuate in accordance
with the law of supply and demand, as they
now and ever must do, regardless of the
monetary system used. It would not be
desirable, even if it were possible, to make
individual prices constant ; but what is desir-
able and possible, and what it is believed
this system would accomplish, is to relieve
the prices of all commodities from the fluctua-
tions due to changes in value of the one com-
modity by which all others are measured ; to
make the money the one commodity which
174 HONEST MONEY.
no one wants except for measuring the value
of and exchanging for other commodities
of constant value. The prices and values of
gold and silver would then depend on their
use for other than money purposes, or for
money purposes in other countries, and if the
value of either metal should fall, or fail to
continue to rise, there would be no room for
complaint that it was being discriminated
against by the laws, since all commodities
would be treated alike, and the demand for
none increased over what it would otherwise
be by its selection for monetary uses.
It is evident that gold could still be used
as a hoard of value, if desired, but such use
would in no way interfere with the volume
of money, as it now does. Neither would
the hoarding of money itself affect prices and
cause business stagnation as is the case now.
The reasons for such hoarding would be mostly
done away with, but if any should remain and
the money be hoarded, the government would
at once issue as much more as was needed to
A NEW MONETARY SYSTEM. 175
supply the deficiency so created, thus main-
taining its value constant, and when the
money hoarded was again put in circulation
the government would withdraw a portion of
it if it were excessive in amount.
The exchange of the new money for the
existing kinds would be a matter of practical
financiering, presenting no unusual difficul-
ties. This need not be enlarged upon.
The gold certificates should be redeemed
with the gold now held for that purpose.
This gold, as well as that now in private
hands, would thereafter take care of itself.
The silver dollars, and all forms of paper
money, should be redeemed in the new money,
dollar for dollar ; the paper money should be
cancelled, and the bullion both gold and
silver sold gradually, with due regard to
the effect of such sales on the prices of gold
and silver, especially the latter. The pro-
ceeds of such sales in the new money should
also be retired from circulation.
As a final result, the new money issued would
176 HONEST MONEY.
all be in the form of loans to banks or individ-
uals, except to the amount used in redeem-
ing the uncovered paper now outstanding, less
the reserve fund (and some loss that would
result from the sale of silver below the price
paid for it). This net balance of the new
money issued, above what was issued as a
loan, could be left as an uncovered paper issue,
as it now is ; but for the sake of uniformity it
would be better to make all the money a loan
issue, in which case it would be necessary to
issue bonds to take up such amount. It rep-
resents now, of course, a remnant of our war
debt, not refunded. No increase of interest
charges would result from funding it in bonds,
for the interest on the bonds would be offset
by the interest on the equal amount of extra
money that would be loaned in that case. It
would make no difference as regards this gen-
eral plan which of the two methods were
adopted.
This plan should not be confounded with
any "fiat money" or unlimited " greenback "
A NEW MONETARY SYSTEM. 177
proposals. Its main point is directly the oppo-
site of these, to secure a more complete control
of money volume. It is not an attempt to
make something out of nothing, or to create
value by government fiat or authority where
none existed before, or to coin the govern-
ment's credit, although there is no valid
objection to doing the latter when properly
limited.
It is simply an exchange of credit, analo-
gous to the operation of every bank. The
government would loan a command over
immediate goods (represented by its promise
to deliver such goods on demand) in exchange
for a promise to return such command over
goods at a future time, and secured by a
deposit of collateral ; and in payment for the
difference between the value of present and
future goods it would charge interest. This
is precisely what the loan department of
every bank does. Every man who accepted
the money in payment for goods would
deposit, for the time being, with the govern-
178 HONEST MONEY.
ment the command over commodities in gen-
eral which he owns ; the money being his
certificate of deposit. This would constitute
the fund from which the loans were made,
just as the deposits in a bank constitute, in
the main, its loan fund. When the money
was used to purchase goods, it would be
redeemed, so far as the purchaser was con-
cerned, and the claim would be transferred to
the seller of the goods, who in turn would
become a depositor.
Like every bank, the government would
rely on the probability that all claims against
it would not be presented for payment at
once, but this probability would amount to a
certainty in the case of the government, for
there would be no probability of any of the
claims being presented for direct redemption,
as every one who had goods to sell would
redeem the notes, so far as the holder was
concerned.
The honesty of the government as an agent
for all the people is, of course, assumed in
A NEW MONETARY SYSTEM. 179
this plan ; but the credit of the government,
in any other than a trust capacity, is neither
assumed nor involved, since it would hold
secured claims against others for every dollar
issued (unless, of course, a portion of the
money was left as an unsecured issue, which,
as above stated, is no necessary part of the
plan).
Money, in its ultimate analysis, is simply a
claim which the holder has against society
for goods in general. It is the faith that
such claim will be recognized, and its value
be stable, that gives currency to all money.
This faith, in the case of coin, is based
wholly on long custom and usage ; in the
case of paper money, it rests on such custom
joined to the pledge express or implied
of the issuer of the paper.
Selling is simply the exchange of a partic-
ular thing for a command over things in
general, and the reverse buying is the
exchange of the general command over goods
for some particular good.
180 HONEST MONEY.
In all existing moneys, this claim is one
only of usage, and its value is variable. In
the plan proposed it becomes a definite
promise of such goods in general, and to a
definite value, the government being the
guarantor.
The plan closely resembles the present
national banking system, but broadened and
improved, and with the objectionable features
of that system removed.
CHAPTER X.
MERITS AND OBJECTIONS CONSIDERED.
THE foregoing chapter is only an outline,
but is believed to be a sufficiently definite one
to show the feasibility of the plan.
Merits of Plan.
The merits of the plan are believed to
be:
(1) It furnishes a standard of value as
nearly invariable as it is possible to obtain in
practice.
(2) It gives a medium of exchange con-
forming in value closely to the standard, one
which is cheap, convenient, elastic, and to be
had in any amount needed.
(3) It would prevent panics. This may seem
181
182 HONEST MONEY.
an extravagant assertion, but further consider-
ation will show that it is well founded. A
panic, whatever the cause, manifests itself as
an unreasoning fear and distrust, which pre-
vents credit from doing its usual work, and
creates an excessive demand for money ; not
only because the money is then needed by
each individual who demands it, but because
each is afraid if he does not get it then he
will not be able to get it when he does need
it. It means a hoarding of money, a great
rise in its value, or, as generally expressed, a
great fall in prices. All this is enhanced by
the knowledge of the limited amount of
money ; in fact, the fear is not so much of
the ultimate solvency of banks and business
institutions as of the fact that there may not
be money enough to go round, and that those
who are not first will be at a disadvantage.
The plan proposed will, in the first place, pre-
vent the growth of any such fear up to the
panic point, by the knowledge that the gov-
ernment stands ready to furnish any amount
MERITS AND OBJECTIONS CONSIDERED. 183
of money that may be needed to maintain
prices ; and, in the second place, if by any
chance such a fear should arise, its first mani-
festation would be falling prices, which would
at once bring an increase of money volume
to meet the demand. It is well known that
nothing will so effectively prevent a panic
that is impending, or check one that has
already begun, as the assurance that the insti-
tutions involved stand ready to meet any de-
mands that may be made upon them. A run
could hardly originate on a bank, believed to
be solvent, were it known that it could obtain
at any moment all the money needed for the
emergency. An element of certainty and
stability would, by this protection, be given
to all banks, and through them to all solvent
and legitimate business institutions, which is
now sadly lacking ; and business men would
be relieved of much of the anxiety and worry
that at times harass them under present
conditions.
(4) The proposed plan would tend to pre-
184 HONEST MONEY.
vent those alternating periods of stimulation
and depression of business known as " good
times" and "bad times." It is not to be
expected that any money system, however
perfect, can wholly prevent excessive specula-
tion, or development beyond the needs of the
people, of particular industries; nor can it
prevent such action from being followed by
its natural consequences of disaster and loss.
Wasted labour, like wasted force of any kind,
can never be regained. Alternations of pros-
perity and adversity, of confidence and dis-
trust, will probably always continue, as they
always have ; but much can be done to lessen
the extent of the fluctuations. A money vol-
ume adjusted to keep prices constant, as a
whole, will evidently operate to prevent pros-
perity from developing into a "boom" (sure
to be followed by a more intense reaction),
and will prevent the ensuing depression from
reaching its extreme in panic.
(5) The adoption of the scheme would do
no violence to existing business. It would
MERITS AND OBJECTIONS CONSIDERED. 185
act rather as a mild stimulant by a slight
raising of prices, and as a greater stimulant,
through the confidence it would give. It
would do no violence to the habits and cus-
toms of the people. Accustomed, as they
already are, to a half dozen different kinds
of paper money, the issue of a new one by
the same authority to take the place of the
others would hardly be noticed, especially as
the change could be and ought to be made
gradually.
If any change were necessary at a future
time in the list of commodities constituting
the standard, it could be made in the same
manner that the standard was first fixed
upon, with no disturbance of business, or
perceptible change in money value.
(6) The interest received for such money
would probably more than pay the interest
on the outstanding government bonds, and
would be as fair and equitable a form of tax-
ation for that, or any other purpose, as could
be devised.
186 HONEST MONEY.
(7) The coin and bullion we now use could
be mostly shipped abroad in payment of our
private debts, represented by American
securities held there, and much interest
money be saved to this country.
(8) Last, but not least, the plan would be
a measure wholly American. This country
would stand alone, free from the disturbing
effects of foreign monetary legislation. Not
that our foreign commerce would be lessened,
or would be free from the effects of commer-
cial disturbances in other countries : commerce
is such a world-wide and intricate network
that it would be impossible, even if it were
desirable, for one country not to be affected by
changes in others ; but our money, the prices
of commodities, as a whole, in that money,
and the relations of debtor and creditor in
this country w r ould be free from foreign influ-
ences.
There are many minor merits in the plan,
such as its tendency to equalize interest rates
on the same, or on equally good, security all
MERITS AND OBJECTIONS CONSIDERED. 187
over the country ; the facility with which
money would flow from the central source to
the point where it was needed, and return
when not needed, instead of having to filter
through many banks with much loss of time
and expense, as it now does ; the saving of
what is now lost by abrasion of coin, etc. ; but
these points need not be enlarged upon.
Objections Answered.
It is to be expected that many objectins
would be raised to a plan, seemingly so radi-
cal as a whole, although it is in reality com-
posed of old and tried methods in most of its
parts. It may be well, therefore, to anticipate
some of the objections likely to be brought
forward and to endeavour to answer them.
Probably one of the first points to be raised
against the plan, and one that, judging from
recent discussion in magazine articles, would
be strongly urged, is that it would have a bad
effect on our foreign trade, and would divorce
our prices from those of foreign countries.
188 HONEST MONEY.
It has already been shown, in the chapter
on foreign commerce, that such fears are
wholly unfounded, and that it makes no
difference what the money is based on ; if it
is reasonably stable in value, foreign trade
will not be disturbed.
In any event, ceasing to use gold in our
domestic commerce would only leave a larger
amount available for foreign commerce if it
were needed. Gold would continue to be a
commodity produced by this country, and
dealt in as all commodities are, and if it were
a necessity or convenience for the transaction
of foreign business, the bankers engaged in
such business would keep a sufficient amount
on hand for their requirements. It is not
believed, however, that any such necessity
would be felt, either by the bankers doing a
foreign business, or by the government in
providing for the payment of interest on its
bonded debt. The latter would probably have
to be calculated in gold, in accordance with
the terms of the contract, but could be paid
MERITS AND OBJECTIONS CONSIDERED. 189
as well in the current money. All such bonds
would in a few years be redeemed, and any
inconvenience from this source would be short-
lived and slight at most.
As to divorcing our prices from those of
other countries, the objection would have no
weight. The values of any of our commodi-
ties, compared with those in other countries,
would in no way be affected. No legislation
can affect or determine the amount of one
commodity that will exchange for another,
either at home or abroad, except as it may
alter the relations of supply and demand
affecting them, by tariffs or taxes, or by the
selection of some special one for a particular
use, as is now done in the case of gold for
money uses.
The values of gold, and of silver (to a less
degree), would be the only things affected by
the proposed change. All others would re-
main the same : the money of our own or
any other country would continue to be used
as a measure of such values, and if our prices
190 HONEST MONEY.
rose as measured in such money, so also would
foreign prices by the same measure. The ex-
change rates would vary as they now do, and
between wider limits ; but the variations
would, probably, not be rapid enough to affect
foreign trade injuriously. Our money would
be constant in value, and if the gold varied,
the slight inconvenience it might be to the
few directly engaged in foreign trade would
be a small matter compared with doing vio-
lence to our immense domestic commerce, by
using such a variable standard.
In regard to all obligations that are made
payable specifically in gold, they should, of
course, be paid on that basis ; but as the value
of gold would be lessened by the shipment of
it abroad, if we abandoned it as a money
basis, the makers of such obligations would
suffer less than they now do, or are likely
to do in the future, because of the apprecia-
tion of gold value. Gold could always be
had to meet such obligations by paying its
current price, and that price would represent
MERITS AND OBJECTIONS CONSIDERED. 191
less of commodities in general than it now
does.
It does not seem as if there could be any
objection raised to the plan on the ground
of unconstitutionally, since the greenbacks
were, and are, held to be constitutional, and
the new notes would be promises to pay gold
and silver, as well as other commodities, if
they were included in the list on which the
money was based, not, to be sure, in a definite
quantity, but in a definite value.
A more valid objection might be urged, in
the danger of entrusting to public officials so
great a power as the control of money value
would seem to be.
In reply to this it may be said, that an
inefficient, or to some extent even dishonest,
control would be far preferable to no control
at all, which is the present condition. The
greater concentration of capital in our modern
industrial system, and the increasing values
handled, necessitates the entrusting of greater
responsibilities to individuals, in both public
192 HONEST MONEY.
and private business, and it has not been
found that the men selected for the higher
positions of trust in public life were often
recreant to the trust reposed in them, or
inadequate to its responsibilities, even where
much was left to their discretion. In the
plan proposed, however, almost nothing would
be left to the discretion of the officials in
charge.
The act of Congress putting the plan in
force could provide for any contingencies
likely to arise, and the duties of the officials
would be mandatory, so far as the adjustment
of the volume of money was concerned and
the method of accomplishing it. Beyond
that, errors of judgment, or even of inten-
tion, could do little harm. Surely it is not ex-
pecting too much of a public official, that he
shall carry out his mandatory instructions,
especially as any variation therefrom would be
liable to immediate detection, and could be
corrected before harm was done.
It might be objected that the government
MERITS AND OBJECTIONS CONSIDERED. 193
should not go into the banking business, that
it is not one of its legitimate functions.
Avoiding the question of what the legiti-
mate functions of government are, about
which there is room for a large difference of
opinion, it may be said that the plan does
not contemplate the government entering the
banking business as a competitor of existing
banks, but rather as a regulator of them.
This function it already exercises, and the
popular demand is rather for an increase of
such control. Furthermore, the Treasury,
under the present system, is the largest
holder of cash in the country, and its action
is at any time of vital interest to the banks.
It has more than once come to their aid in
perilous times, to the extent of its ability, and
had its ability been greater it could, and
doubtless would, have done so more fre-
quently. At times, moreover, the actual
money held in the Treasury has been excessive,
and by diminishing the volume of money in
circulation this has badly affected business.
194 HONEST MONEY.
The proposed plan would prevent this, and
while not materially enlarging the functions
now exercised by the government, would make
its control of the banking system more direct
and effective, to the benefit alike of the banks
and the public. Our present banking system,
admittedly, shows much weakness in times of
panic. Each bank expands its credits to the
full limit in times of prosperity, for its own
profit, and in time of distress contracts them
for its own safety, thus increasing the distress
at such times. Under this plan its safety, if
solvent, would be assured without the need of
contracting its credits.
As to controlling the volume of money, this
either is, or is not, a- proper governmental
function. If it is, then justice demands that
the control be efficient, and in the interests
of an honest money. If it is not, if the
sole duty of government is to certify to the
weight and fineness of pieces of metal by coin-
ing them, then it has no right to refuse to
coin any amount that may be presented of
MERITS AND OBJECTIONS CONSIDERED. 195
any metal the people or any section of them
desire to use as money ; no right to issue, or
authorize others to issue, on government
credit, any paper money; and no right to
forbid, or prevent in any way, banks, firms,
or individuals from issuing, on their own
credit, any money they chose. All of these
acts are a control of money volume. The
mere statement of such an alternative is a
sufficient refutation of the claim. It would
simply be financial anarchy. The government
must control money volume, and the control
should be real, effective and honest.
Other objections might be raised to this
plan, but none are foreseen of sufficient
weight or gravity to offset in any consider-
able degree the merits it seems to present.
CHAPTER XI.
CONCLUSION.
A UNIVERSAL money for the whole world
has been the dream of some writers. This
in many respects would be a convenience, as
would a general uniformity of weights and
measures ; but its benefits would be confined
mainly to a saving of clerical work, and even
this would not be as great an advantage as
might be supposed, since differences in value
of bills of exchange would continue to exist,
even as they now exist between countries
using the same money, or even between differ-
ent cities of the same country.
Unless the universal money were stable in
value, it would be as dishonest as the existing
systems, and to make it stable would involve
196
CONCLUSION. 197
its absolute control in volume by some cen-
tral power to which the various nations would
delegate their authority. Such a thing is
most unlikely to happen. The obstacles of
national prejudice and habit are too strong
to be overcome, as will be evident from a
perusal of Mr. Walter Bagehot's work, " Uni-
versal Money," and the advantage to be
gained by it is not worth the trouble. A
universal money, then, must be considered as
a Utopian dream ; and a plan that provides
for our own country an honest money seems
to be the highest success to which we can at
present aspire in the settlement of this vital
and all-important question.
Whether future legislation be based on
some such plan as the one here outlined, or
whether another can be devised that will
more closely meet the requirements, the fun-
damental principles we have considered should
be kept in mind in any change that is made.
It should also be clearly understood that
no monetary legislation, by this or any other
198 HONEST MONEY.
country, can alter the relative values of all,
or any, of the commodities, including gold and
silver, which enter into human use and con-
sumption, except in so far as such legislation
shall affect their relative supply and demand.
All that legislation can really beneficially do,
is to provide a stable standard of value, as it
now provides stable standards of length and
weight, and to provide a medium of exchange
that shall always conform in value to that
standard, and shall be at once convenient and
economical.
Opinions may honestly differ as to the best
means of providing such a money, but, when
fully understood, no difference of opinion can
exist as to the benefit it would be to all
classes of society, without exception.
The labourer gains by employment being
more certain and constant ; by the knowledge
that open competition with capital will deter-
mine the shares of the joint product which
each shall receive, that he will not be the
victim of an insidious change in money value
CONCLUSION. 199
or, while receiving nominally higher wages,
be perhaps getting lower real wages. With
an honest money, real and nominal wages
coincide, and a rise or fall of wages is known
at once as a benefit or an injury. The effect
on wages would be toward an increase, by
stimulating production and enhancing the
demand for labour ; while the labourer's
ability to purchase more would absorb such
increased production and improve his con-
dition.
The employer of labour would gain by the
certainty that his success will depend more
largely on his own ability and endeavour,
and less on causes which are not only beyond
his control, but on which he cannot even
calculate with certainty; while the greatest
risks to which he is now subject will be
removed.
This applies not only to manufacturers, but
to industrial enterprises of all kinds.
Eailroad stockholders would be especially
benefited. No other business, perhaps, carries
200 HONEST MONEY.
so large a fixed indebtedness, in proportion to
its value, as railroads, and the stockholders
suffer more from an advance in the value of
money than most other owners. The fact
that they are to some extent monopolies and
can keep their rates the same, or even in-
crease them, with money value rising, does
not alter the case; for the amount of traffic
will, under such conditions, be lessened, and
it is impossible for most railroads to reduce
expenses in anything like a proportion to the
reduction of income from diminished business,
because of the large fixed charges.
Merchants would be benefited by the
greater general stability of prices, and would
be relieved of many of the risks of business.
They would, if solvent, have assurance that
they could get money when needed, and the
failures would be fewer.
Money loaners would also be benefited.
It might seem, at first sight, as if they would
not, since they profit directly by an increase
of money value ; but this is a narrow view.
CONCLUSION. 201
While the money leaner, as before shown,
gets an undue and unjust share of the prod-
ucts of labour and capital when prices are
falling, yet the secondary effects of such a
fall, the increased competition for loans, and
diminished demand for capital for business
enterprises, by lowering interest rates, tends
to offset this gain ; and the doubt and uncer-
tainty as to security keep capital idle as well
as labour. The lender gets a larger share of
the total product than he is entitled to, under
such conditions ; but the total product is so
much lessened as a whole, that his larger
share is less in actual amount than a just
share of the larger product would be, were
money honest and prices constant. Moreover,
one of the most important considerations to a
lender is security, and this is much lessened
with falling prices, and the leaner is fre-
quently obliged to take the property which is
security for his loan. He does not want the
care and management of it, as it is generally
far less valuable in his hands than in those of
202 HONEST MONEY.
the original owner ; the latter thereby loses
something which he could use, and the former
gains something he has no use for, and no
one is really benefited. * It cannot be con-
sidered, therefore, that loaners, as a class,
either profit by or desire such a condition of
business depression and panic as is largely
produced by dishonest money.
A few individuals there may be the
leeches or wreckers of society who rejoice
at and profit by the general misfortune of
all ; but they are not, it is believed, suffi-
ciently numerous to make their desires im-
portant or consideration for them a matter of
anxiety.
In view of these considerations, the at-
tempt so often made in discussing the
question of money to set class against
class, to lead labour to consider capital as
its enemy, to embitter the relations between
borrower and lender, and between the banks
and the public, is greatly to be deplored.
Competitors in a sense these different classes
CONCLUSION. 203
doubtless are, but so far as an honest money
is concerned all are partners ; all would be
gainers by it and none losers. Past experi-
ence does not lead us to expect that men
will generally become unselfish and altru-
istic in their motives in the near future.
Business will continue to be, as it always has
been, a struggle for the greatest amount of
commodities with the least labour ; and the
plea for an honest money rests not upon
altruism, but upon the enlightened selfishness
which teaches that honesty is the best policy,
in a money system as in other things, and
that it is not profitable to kill the goose that
lays the golden eggs.
INDEX.
Aldrich Report, the, 83.
Bagehot, Walter, quoted, 54, 122,
197.
Bank-notes, national, proposal
for increasing issue of, 140.
Bi-iuetallisin, 40, 07.
Bohm-Bawerk, von, quoted, 4. 7.
Capital and money, distinction
between, 104.
Coin. See Money.
Coin and paper money, 1>L'.
Cost of production, 10.
Credit, money forms of, 92.
Currency, an elastic. See Money.
Decline in prices, 90, 101.
Definition of money, 21.
Definition of value, 1.
Demand and supply. See Supply
and Demand.
Dollar, gold and silver, 125.
Economist, London, on foreign
prices, 83, 84, 86.
Ely, Prof. R. T., quoted, 32, -i7.
Employers of labour, 102, 199.
Encyclopaedia Britannica on
money, 35.
Exchange, money as a medium
of. See Money.
Existing monetary systems, 51.
Foreign commerce, 112-124; bal-
ance of trade, from an eco-
nomic standpoint, a misnomer,
114; international trade, ib.
France, monetary system of,
changed to a gold basis, 70.
Functions and requirements of
money. 15.
Germany, monetary system of,
changed to a gold basis, 70.
Gold. See Money and Monetary
Systems.
Gold production between the
years 1850-57 in Australia and
California, 90.
Gold-standard arguments criti-
cised, 98; Mr. D. A. Wells'
fallacy of deeming labour a
test of value, 100; threefold
division of the community into
labourers, employers of labour,
and money loaners, 102; dis-
tinction between capital and
money. See Stability of Gold
and Silver Values.
Gold standard, the, 54.
Greenbacks, 12(5, 129, 146.
Gresham's law, 57, 59, 65, 07,
149.
205
206
INDEX.
Inconvertible paper, 22, 7<i.
India, English commission on
the depression of trade in,
119; silver currency in, 9S.
Invariable money value, neces-
sity for, 28, 40.
Jevons, Professor, quoted, 25, 27,
154.
Labour, productive and unpro-
ductive, 14 ; three kinds of, as
factors in making for the value
of a commodity, 15 ; labour
not a standard of value, 18.
Laughlin, Prof. J. L., quoted, 40.
Medium of exchange, the, 1G4.
Mexican exchange, 120.
Mill, John Stuart, quoted, 0, 14,
18, 31, 36, 76.
Money loaners, 103, 200.
Money, definition of, 21; F. A.
Walker's comprehensive defi-
nition, ib. ; paper money and
coin, 22 sqq. ; functions and
requirements of, 25 ; money as
' a medium of exchange,' ' a
measure of value,' and 'a
standard of deferred pay-
ments,' ib. ; Professor AValk-
er's substitution for the term
'measure of value,' 'common
denominator of value,' 26;
money as ' a store of value,'
ib.; qualities necassary to a
money material, 27 ; invariable
value, 28; fluctuations in
money value, 30; J. S. Mill
on the purchasing power of
money, 32 ; the Encyclopedia
Britannica quoted, 35 ; money
demand and supply, 3(5 ; money
actual- and money in forms of
credit, 38 ; an invariable money
value, 40; a change of money
value, a robbery, 42; F. A.
Walker, on decreasing money
value, 44 ; a flexible or elastic
currency, need of, 45; money
in all countries a creature of
the law, 53.
Money in the United States, 125 ;
greenbacks, national bank-
notes, silver and gold certifi-
cates, treasury notes, currency
certificates, 126; gold coin, sil-
ver coin, 128; national bank-
notes wrong in principle, 129;
no means to-day of meeting
either the increasing demand
for money expanding popula-
tion and commerce bring, or
the sudden demand that a fail-
ure of credit may bring, 133;
results, ib.; some proposed
changes in our monetary sys-
tem, 137 ; free coinage of silver,
138 ; erroneous views confuted,
139 ; ' greenback ' or fiat
money proposals, 146 ; increase
of the issue of national bank-
notes a mere makeshift, 147;
divorce of our money from that
of other countries only mode
of controlling it and making it
honest, 150; a new monetary
system, 151 ; standard of value,
158 ; medium of exchange, Ki4 ;
the national banks as a disl rib-
uting agency, 107; complete
control of the money volume,
177; merits of plan considered,
181; an invariable standard of
value, ib.; a cheap, convenient,
and elastic medium of ex-
change, ib. ; prevention of
panics, ib. ; repression of ex-
cessive speculation and its re-
action, 183, 181; plan wholly
INDEX.
207
American, 180; objections an-
swered, 187; conclusion, 19(5.
Money system, our, some pro-
posed changes in, 137.
Money value, 29.
Monetary systems, existing, 51 ;
the gold standard, ~>4 ; Gres-
ham's law, 57 : the silver stand-
ard, Go; U-metallism,<;7; paper
money, 71 ; J. S. Mill on in-
convertible paper, 70.
X<>w monetary system, a, 151-
180.
Panics and hard times, causes of,
45; panic of 1857, collapse of
credit in, 90; panic of 1873, 91.
Paper money, 71, 78; Prof. F. A.
Walker on, 77. See Money.
Patten, Prof. Simon N., quoted,
7.
Prices, declining, evils of, 101 ;
Professor Sherwood on sta-
bility of, 48.
Production, cost of, 10.
Purchasing power, 5.
Ricardo, David, quoted, 14, 17,
34,46.
Sauerbeck, Mr., quoted, 83, 84, 87.
Sherwood, Sidney, quoted, 48.
Silver, see Money ; the silver
standard, see Monetary system.
Silver, free coinage of, 138, 139.
Silver famine of the Middle Ages,
82.
Silver production in Nevada, 91.
Silver standard, the, 65.
Silver-standard prices, 94.
Smith, Adam, referred to, 14.
Soetbeer, Dr. quoted, 83, 84, 87.
Stability of gold and silver
values, 81-97 ; gold standard
prices, 81; European economists
on prices, 83; decline in prices,
90 ; silver-standard prices, 94.
Standard of value, the, 12, 158.
Supply and demand, 8; the im-
mediate determiner of value
the relation between supply
and demand, ib. ; the demand
for a commodity determined
by its subjective or exchange
value, 9, 10 ; close connection
between value and the ratio
between demand and supply,
10.
Tauschkraft, 5.
United States, the, stops free
coinage of silver, 70.
United States Senate Finance
Committee Report on 'Whole-
sale Prices,Wages, and Trans-
portations,' 83.
Value and the standard of val-
ue, 1-20; definition of value,
1 ; the two classifications
'Value in use,' and 'Value in
exchange,' 3; Bohm-Bawerk
on 'Value in the subjective
sense,' 4; John Stuart Mill's
aphorism ' every rise of
value supposes a fall, and
every fall a rise,' 7 ; Simon N.
Patten on 'objective values,'
ib. ; standard of exchange
value, 12; exchange value,
what determines its constancy
or variability, 19; only one
real standard of value, 20.
Walker, Prof. F. A., quoted.
21, 24, 25, 77, 78, 82, 156.
Wells, David A., quoted, SQsqq. :
94, 95, 98, 100, 101, 10.5-111,
119, 120.
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should neglect, and no reader can study without recognizing it as the work of a
singularly penetrating and original mind." The Times (London).
" It is a study of the whole development of humanity in a new light, and it is
sustained and strong and fresh throughout. ... It is a profound work which
invites the attention of our ablest minds, and which will reward those who give it
their careful and best thought. It marks out new lines of study, and is written in
that calm and resolute tone which secures the confidence of the reader. It is
undoubtedly the ablest book on social development that has been published for a
long time." Boston Herald.
" Those who wish to follow the Bishop of Durham's advice to his clergy ' to
think over the questions of socialism, to discuss them with one another reverently
and patiently, but not to improvise hasty judgments ' will find a most admira-
ble introduction in Mr Kidd's book on social evolution. It is this because it not
merely contains a comprehensive view of the very wide field of human progress,
but is packed with suggestive thoughts for interpreting it aright. . . . We hope
that the same clear and well-balanced judgment that has given us this helpful
essay will not stay here, hut give us further guidance as to the principles which
ought to govern right thinking on this, the question of the day. We heartily
commend this really valuable study to every student of the perplexing problems
of socialism." The Churchman.
MACMILLAN & CO.,
66 FIFTH AVENUE, NEW YORK.
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